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rachat de crédits: Formulaire 10-Q Assertio Therapeutics, avant le 30 septembre -Simulation



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ETATS UNIS

TITRES ET ÉCHANGES

WASHINGTON, D.C. 20549

FORMULAIRE 10-Q

X RAPPORT TRIMESTRIEL CONFORMÉMENT À L'ARTICLE 13 OU 15 D) DE L'ÉCHANGE DE TITRES DE 1934

POUR LA FIN DE PERFECTION 30 SEPTEMBRE 2019

OU

☐ RAPPORT TRANSITOIRE CONFORMÉMENT À L'ARTICLE 13 OU 15 D) DE L'ÉCHANGE DE TITRES DE 1934

POUR LA PÉRIODE DE TRANSITION À PARTIR DE

NUMÉRO DE DOSSIER DE LA COMMISSION 001-13111

ASSERTIO THERAPEUTICS, INC.

(NOM EXACT DE L'ENREGISTRE INDIQUÉ DANS SA CHARTE)

DELAWARE

94-3229046

(ÉTAT OU AUTRE JURIDICTION DE

INCORPORATION OU ORGANISATION)

(NUMÉRO D'IDENTIFICATION DE L'EMPLOYEUR)

100 South Saunders Road, Suite 300

Lake Forest, Illinois 60045

(ADRESSE DES PRINCIPAUX BUREAUX EXÉCUTIFS; CODE ZIP)

(224) 419-7106

(NUMÉRO DE TÉLÉPHONE DE L'ENREGISTREMENT, Y COMPRIS LE CODE DE SECTEUR)

Titres inscrits conformément à l’article 12 b) de la loi:

Titre de chaque classe:

Symbole (s) d'échange:

Nom de chaque bourse sur laquelle est inscrit:

Actions ordinaires, valeur nominale de 0,0001 $

ASRT

Le Nasdaq Stock Market LLC

Indiquez par un chèque si le déclarant (1) a soumis tous les rapports à déposer conformément aux articles 13 ou 15 (d) de la Securities Exchange Act of 1934 au cours des 12 mois précédents (ou pendant une période plus courte le déclarant était tenu de soumettre de tels rapports), et (2) a été soumis à de telles exigences d’archivage au cours des 90 derniers jours. Oui X non O

Indiquez avec un chèque si le déclarant a soumis un fichier de données interactif qui doit être soumis conformément à la règle 405 de la règle ST (§232.405 du présent chapitre) au cours des 12 derniers mois (ou pendant une période plus courte que le déclarant avait dû soumettre) ). Oui X non O

Indiquez par un chèque si le titulaire est un grand déposant accéléré, un déposant accéléré, un déposant non accéléré, une petite société déclarante ou une société en croissance émergente. Voir les définitions de "grand déposant accéléré", "déposant accéléré", "petite société présentant les états financiers" et "société en croissance émergente" dans la règle 12b-2 de la loi intitulée Exchange Act.

Grand classeur accéléré O

Filer accéléré X

Filer non accéléré O

Petite entreprise déclarante O

Entreprise en croissance émergente O

Si une entreprise en croissance émerge, indiquez par un contrôle si le déclarant a choisi de ne pas utiliser la période de transition prolongée pour se conformer aux normes nouvelles ou révisées en matière d’information financière fournies conformément à l’article 13 a) de la Bourse. Act. O

Indiquez par un chèque si le déclarant est une société écran (au sens des règles 12b-2 de la loi intitulée Exchange Act). Oui O non X

Le nombre d'actions émises et en circulation des actions ordinaires de l'inscrit, valeur nominale de 0,0001 $ 4 novembre 2019 était 80 681 036.


ASSERTIO THERAPEUTICS, INC.

Rapport trimestriel sur formulaire 10-Q

Pour le trimestre fermé 30 septembre 2019

TABLE DES MATIERES


PARTIE I – INFORMATIONS FINANCIÈRES

POINT 1. COMPTES ANNUELS

ASSERTIO THERAPEUTICS, INC.

BILAN CONSOLIDÉ CONDENSÉ

(en milliers)

(Vérifié)

30 septembre 2019

31 décembre 2018

RESSOURCES

Actif à court terme:

Trésorerie et équivalents de trésorerie

$

54,181

$

110 949

Débiteurs, net

43 427

37.211

Stocks nets

3314

3396

Prépayé et autres actifs courants

23 480

56 551

Total des actifs courants

124 402

208 107

Propriété et équipement, net

3873

13 064

Immobilisations incorporelles nettes

615,768

692 099

Investissements

7244

11 784

Autres actifs à long terme

5579

7812

Total des actifs

$

756,866

$

932 866

RESPONSABILITÉ ET PROPRIÉTAIRE DES ACTIONNAIRES

Passif à court terme:

Payer les factures

$

22 700

$

6138

Remises accumulées, retours et remises

60 979

75 759

Charges à payer

33 270

31 361

Partie courante des billets de premier rang

80 000

120 000

Intérêts dus

6687

11 645

Autres passifs courants

2096

1133

Total du passif à court terme

205 732

246 036

Indemnisation conditionnelle pour responsabilité

981

1038

Notes Senior

94 661

158 309

Notes convertibles

190 923

287,798

Autres dettes à long terme

16 135

19 350

Total du passif

508,432

712,531

Promesses et situations imprévisibles

Équité:

Actions ordinaires

8

6

Extra capital versé

455,601

402,934

Déficit cumulé

(207,175

)

(182 600

)

Cumul des autres pertes substantielles

(5

)

Total des capitaux propres

248,434

220 335

Total du passif et des capitaux propres

$

756,866

$

932 866

Les notes annexes font partie intégrante des états financiers consolidés résumés non audités.


ASSERTIO THERAPEUTICS, INC.

COMPTES CONSOLIDÉS RÉSUMÉS DU RÉSULTAT ÉTENDU

(en milliers, sauf les données par action)

(Vérifié)

Trois mois se terminant le 30 septembre

Neuf mois se terminant le 30 septembre

2019

2018

2019

2018

gains:

Ventes de produits, nettes

$

27,502

$

29 435

$

79 889

$

100 627

Accord de commercialisation, net

27.304

27 781

89 163

142 760

Redevances et jalons

341

20 277

1226

25 784

Total des ventes

55 147

77 493

170 278

269 ​​171

Frais et charges:

Coût des ventes (hors amortissement des immobilisations incorporelles)

2243

2975

6942

17 772

Frais de recherche et développement

1476

2127

4531

5835

Frais de vente, généraux et administratifs

36.117

33 409

85 917

93 750

Amortissement des immobilisations incorporelles

25 444

25 443

76 331

76 331

Coûts de restructuration

3911

18 742

Total des frais et dépenses

65 280

67 865

173 721

212 430

(Perte) revenus des activités commerciales

(10.133

)

9628

(3443

)

56 741

Autres revenus (coûts):

Règlement des litiges

62 000

62 000

Bénéfice sur l'allégement de la dette

26.385

26.385

Frais d'intérêts

(13.872

)

(17,190

)

(45 268

)

(52 268

)

Autres avantages (coûts), nets

(764

)

677

(2613

)

973

Total autres coûts (avantages)

11 749

45 487

(21 496

)

10.705

Résultat net avant impôt

1616

55 115

(24 939

)

67 446

Impôts sur le revenu (coûts)

1715

(6845

)

364

(6400

)

revenu net (perte)

$

3331

$

48 270

$

(24 575

)

$

61 046

Autre résultat total:

Plus-values ​​latentes sur les titres disponibles à la vente, après impôts

1

Résultat total (perte)

$

3331

$

48 270

$

(24 575

)

$

61 047

Résultat net par action (perte nette)

$

0,05

$

0,76

$

(0,36

)

$

0,96

Résultat net dilué par action

$

0,05

$

0,65

$

(0,36

)

$

0,93

Actions utilisées pour le calcul du revenu de base (perte) par action

72 747

63 917

67 332

63 714

Actions utilisées pour calculer le résultat net dilué par action

72 747

82 690

67 332

82 282

Les notes annexes font partie intégrante des états financiers consolidés résumés non audités.


ASSERTIO THERAPEUTICS, INC.

COMPTES CONSOLIDÉS RÉSUMÉS DES DONNÉES DU PROPRIÉTAIRE

(en milliers)

(Vérifié)

`

Stock commun

Extra
Payé en
Capitale

collecté
mérite
(Insuffisance)

collecté
autrement
Étendu
Perte

actionnaires
Équité

Actions

Montant

Soldes au 31 décembre 2017

63 400

6

$

389 015

$

(219 508)

)

$

(5

)

$

169 508

Emission d'actions ordinaires lors de l'exercice d'options

120

636

636

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

33

Rémunération à base d'actions

2234

2234

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(114

)

(114

)

Revenu net

33 824

33 824

Perte non réalisée sur les titres disponibles à la vente

2

2

Soldes au 31 mars 2018

63 553

6

$

391 771

$

(185 684

)

$

(3

)

$

206 090

Emission d'actions ordinaires lors de l'exercice d'options

108

667

667

Emission d’actions ordinaires dans le cadre du plan d’achat pour les employés

72

381

381

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

169

Rémunération à base d'actions

5270

5270

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(153

)

(153

)

Perte nette

(21 048

)

(21 048

)

Plus-values ​​latentes sur les titres disponibles à la vente

(1

)

(1

)

Soldes au 30 juin 2018

63 902

6

$

397,936

$

(206 732

)

$

(4

)

$

191 206

Emission d'actions ordinaires lors de l'exercice d'options

37

166

166

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

(4

)

(4

)

Rémunération à base d'actions

2771

2771

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

Revenu net

48 270

48 270

Soldes au 30 septembre 2018

63 939

6

$

400 869

$

(158 462

)

$

(4

)

$

242.409

Les notes annexes font partie intégrante des états financiers consolidés résumés non audités.


ASSERTIO THERAPEUTICS, INC.

COMPTES CONSOLIDÉS RÉSUMÉS DES DONNÉES DU PROPRIÉTAIRE

(en milliers)

(Vérifié)

(Suite)

Stock commun

Extra
Payé en
Capitale

collecté
mérite
(Insuffisance)

collecté
autrement
Étendu
Perte

actionnaires
Équité

Actions

Montant

Soldes au 31 décembre 2018

64 185

6

$

402,934

$

(182 600

)

$

(5

)

$

220 335

Emission d'actions ordinaires lors de l'exercice d'options

14

25

25

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

132

Rémunération à base d'actions

2702

2702

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(216

)

(216

)

Perte nette

(14 301

)

(14 301

)

Soldes au 31 mars 2019

64 331

6

$

405,445

$

(196 901

)

$

(5

)

$

208 545

Emission d’actions ordinaires dans le cadre du plan d’achat pour les employés

64

158

158

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

426

Rémunération à base d'actions

2634

2634

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(293

)

(293

)

Perte nette

(13,655

)

(13,655

)

Soldes au 30 juin 2019

64 821

6

407,944

(210 506

)

(5

)

197 439

Emission d’actions ordinaires associée à l’acquisition d’actions attribuées conditionnellement

42

Emission d’actions ordinaires en combinaison avec l’échange de billets convertibles

15 817

2

25 305

25 307

Re-acquisition de la composante capitaux propres des billets 2021, après impôts

(4796

)

(4796

)

Composante en actions des billets 2024 émis après impôts

24 165

24 165

Rémunération à base d'actions

3004

3004

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(19

)

(19

)

Perte non réalisée sur les titres disponibles à la vente

5

5

Revenu net

3331

3331

Soldes au 30 septembre 2019

80 680

8

455,601

(207,175

)

248,434

Les notes annexes font partie intégrante des états financiers consolidés résumés non audités.


ASSERTIO THERAPEUTICS, INC.

TABLEAUX DES FLUX DE TRESORERIE CONSOLIDES CONDENSES

(en milliers)

(Vérifié)

Neuf mois se terminant le 30 septembre

2019

2018

Activités commerciales

revenu net (perte)

$

(24 575

)

$

61 046

Ajustements pour éléments non monétaires:

Amortissement

77 225

80 729

Cumul de la réduction de la dette et des coûts d’émission de dette

18 090

16 298

Provision pour inventaire vieillissant

295

244

Perte lors du retrait de l'équipement

10 076

659

Rémunération à base d'actions

8340

10 275

Variation de la juste valeur de la contrepartie éventuelle

(57

)

(552

)

Avantages fiscaux différés

(5636

)

Bénéfice sur l'allégement de la dette

(26.385

)

Variation de la juste valeur des warrants

4900

autrement

(328

)

34

Changements d'actif et de passif:

Débiteurs

(6216

)

28 570

les stocks

(213

)

8543

Actifs payés d'avance et autres

38 600

(63 039

)

Dettes et autres charges à payer

17 381

(28,071

)

Remises accumulées, retours et remises

(14 780

)

(54 915

)

Intérêts dus

(4958

)

(2960

)

Taxes dues

(9139

)

(126

)

Trésorerie nette fournie par (utilisée dans) les activités opérationnelles

82 620

56 735

Activités d'investissement

Achat de biens immobiliers et d'équipement

(1526

)

(3987

)

Produit de la cession d'immobilisations corporelles

145

Produit de la vente d'autres actifs

80

Investissement en instrument convertible

(3000

)

Achats de titres négociables

(12 065

)

Vente de titres négociables

4209

Échéances des titres négociables

7856

1200

Trésorerie nette (utilisée) générée par les activités d'investissement

(1526

)

(5562

)

Activités financières

Paiement de remboursement conditionnel

(184

)

Remboursement de billets de premier rang

(100 000

)

(57 500

)

Frais de modification des notes de premier rang

(3249

)

Paiements liés à la restructuration de la dette

(30 000

)

Dépenses en obligations convertibles

(4268

)

Produit de l'émission d'actions ordinaires

183

1852

Actions retenues pour le paiement de l'obligation de retenue d'impôt du salarié

(528

)

(321

)

Trésorerie nette (utilisée dans) les activités de financement

(137 862

)

(56.153

)

Net (diminution) en trésorerie et équivalents de trésorerie

(56 768

)

(4980

)

Trésorerie et équivalents de trésorerie en début d’année

110 949

126 884

Trésorerie et équivalents de trésorerie à la fin de la période

$

54,181

$

121 904

Informations supplémentaires sur les flux de trésorerie

Trésorerie nette payée pour les impôts sur le revenu

$

420

$

4871

Trésorerie payée pour les intérêts

$

32.054

$

38 811

Investissements réalisés mais non encore payés

$

53

$

30

Les notes annexes font partie intégrante des états financiers consolidés résumés non audités.


ASSERTIO THERAPEUTICS, INC.

NOTES AUX ÉTATS FINANCIERS CONSOLIDÉS RÉSUMÉS

(Vérifié)

NOTE 1. ORGANISATION ET RESUME DES PRINCIPALES CONVENTIONS COMPTABLES

Organisation

Assertio Therapeutics, Inc. ("Assertio" ou "la société") est une société pharmaceutique spécialisée dans les domaines de la neurologie, des médicaments orphelins et des médicaments spécialisés. La spécialité pharmaceutique actuelle de la société comprend les éléments suivants: trois Produits que la société commercialise aux États-Unis (US):

Gralise® (gabapentine), un produit à prise unique quotidienne pour la gestion de la névralgie post-herpétique (PHN), lancé en octobre 2011.

CAMBIE® (diclofenac potassium pour solution buvable), un anti-inflammatoire non stéroïdien destiné au traitement aigu des crises de migraine, acquis par la société en décembre 2013.

Zipsor® (capsules remplies de diclofénac potassique liquide), un anti-inflammatoire non stéroïdien destiné au traitement de la douleur aiguë légère à modérée, acquis par la société en juin 2012.

La société a conclu un accord de commercialisation avec Collegium Pharmaceutical, Inc. (Collegium) sur la base duquel la société Collegium a concédé le droit de commercialiser le produit NUCYNTA® franchise de produits contre la douleur aux États-Unis. Conformément à l'accord de commercialisation, Collegium a assumé toutes les responsabilités en matière de commercialisation de la franchise NUCYNTA le 9 janvier 2018, y compris les ventes et le marketing. La société perçoit une redevance sur tous les revenus de NUCYNTA en fonction de certains seuils de ventes nettes.

La société détient également des droits exclusifs sur le marché de la cosyntropine à action prolongée (hormone synthétique adrénocorticotrope ou ACTH) aux États-Unis et au Canada. La cosyntropine à action prolongée est une formulation sans alcool d'un analogue synthétique de l'ACTH. En février 2019, la Food and Drug Administration (FDA) des États-Unis a reçu une notification d'acceptation de la soumission de la demande de nouveau médicament (NDA) 505 (b) (2) de notre partenaire de développement pour la nouvelle formulation injectable de cosyntropine à action prolongée. En collaboration avec son partenaire de développement, la société souhaite obtenir l’approbation de l’utilisation de ce produit en tant que médicament de diagnostic pour le dépistage des patients chez lesquels l’on soupçonne une insuffisance corticosurrénalienne. Le 18 octobre 2019, notre partenaire de développement a reçu une lettre de réponse complète (CRL) de la FDA concernant la NDA pour la cosyntropine à action prolongée. L’objectif principal des LCR concerne la détermination par la FDA que certains paramètres pharmacodynamiques n’ont pas été atteints de manière suffisante. Nous et notre partenaire de développement examinons actuellement la LCR et déterminerons si les commentaires de la FDA peuvent être traités de manière adéquate.

Base de présentation

Les états financiers consolidés résumés non audités et les notes de bas de page correspondantes de la société ont été préparés conformément aux exigences de la Securities and Exchange Commission («SEC») en matière de rapports intermédiaires. Conformément à ces règles et réglementations, certaines notes de bas de page ou autres informations financières normalement requises par les principes comptables généralement reconnus des États-Unis ("PCGR") sont résumées ou omises conformément à ces règles et réglementations. De l’avis de la direction de la Société, les états financiers consolidés résumés intermédiaires non audités ci-joints comprennent tous les ajustements nécessaires pour obtenir une image fidèle des informations sur les périodes présentées. Les résultats pour le trois et neuf mois passés 30 septembre 2019 ne sont pas nécessairement indicatifs des résultats attendus pour toute l'année qui se termine 31 décembre 2019 ou périodes futures.

Les états financiers consolidés résumés non audités ci-joints et les informations financières connexes doivent être lus conjointement avec les états financiers audités et les notes annexes de l’exercice clos. 31 décembre 2018 inclus dans le rapport annuel de la société sur formulaire 10-K, déposé auprès de la SEC le 11 mars 2019 (le & # 39;2018 Formulaire 10-K & # 39;). Le solde de 31 décembre 2018 est dérivé des états financiers vérifiés à cette date, tels que déposés auprès de la société 2018 Formulaire 10-K.


Principes de consolidation

Les états financiers consolidés comprennent les comptes de la société et de ses filiales à part entière, Depomed Bermuda Ltd (Depo Bermuda), Depo NF Sub, LLC (Dépo NF Sub) et Depo DR Sub, LLC (Depo DR Sub). Tous les comptes et transactions intersociétés ont été éliminés dans la consolidation.

Utilisation d'estimations

La préparation des états financiers consolidés résumés conformément aux PCGR des États-Unis exige de la direction qu'elle formule des estimations et formule des hypothèses ayant une incidence sur les montants présentés dans les états financiers consolidés résumés et les notes annexes. Les estimations sont utilisées pour comptabiliser les montants comptabilisés dans le cadre d’acquisitions, y compris les justes valeurs initiales des actifs et des passifs, ainsi que les justes valeurs ultérieures. En outre, des estimations sont utilisées pour déterminer des éléments tels que les remises et les revenus des ventes, les échéances amortissables et amortissables, les hypothèses de rémunération à base d’actions et les impôts sur les bénéfices. Bien que la direction estime que ces estimations reposent sur des hypothèses raisonnables, dans les limites de sa connaissance des activités de la société, les résultats réels peuvent différer considérablement de ces estimations.

Information segmentée

L'entreprise persévère une secteur opérationnel et opère exclusivement aux États-Unis. À ce jour, la quasi-totalité des produits de la société tirés de la vente de produits a été liée aux ventes aux États-Unis.

acquisitions

La société comptabilise les sociétés acquises selon la méthode de l'acquisition, ce qui nécessite que les actifs et les passifs acquis soient comptabilisés à la date d'acquisition à leur juste valeur respective. La juste valeur de la contrepartie payée, y compris la contrepartie éventuelle, est affectée aux actifs nets sous-jacents de la société acquise en fonction de leur juste valeur respective. Tout excédent du prix d'achat supérieur à la juste valeur estimée des actifs nets acquis est comptabilisé en tant que goodwill.

Des jugements importants sont utilisés pour déterminer les justes valeurs estimatives attribuées aux actifs acquis et aux passifs repris et pour établir les estimations de la durée de vie utile des actifs à long terme. Les déterminations de la juste valeur et les estimations de la durée de vie utile sont basées, entre autres, sur des estimations des flux de trésorerie nets futurs attendus, des estimations des taux d’actualisation appropriés utilisés pour les tendances concurrentielles sur le cycle de vie de chaque actif et d'autres facteurs. Ces évaluations peuvent avoir une incidence importante sur les estimations utilisées pour attribuer les justes valeurs de la date d’acquisition aux actifs et passifs acquis, ainsi que le calendrier et les montants en résultant, inclus ou inclus dans les résultats d’exploitation courants et futurs. Pour ces raisons, entre autres, les résultats réels peuvent différer considérablement des résultats estimés.

Les variations de la juste valeur de la contrepartie éventuelle résultant d'une modification des intrants sous-jacents sont comptabilisées dans les charges opérationnelles jusqu'au règlement du plan de contrepartie éventuelle. Les variations de la juste valeur de la contrepartie éventuelle résultant de l'écoulement du temps sont comptabilisées dans les intérêts débiteurs jusqu'à ce que la contrepartie éventuelle soit réglée.

Si les actifs nets acquis ne constituent pas une entreprise selon la méthode de l'acquisition, la transaction est enregistrée en tant qu'acquisition d'actifs et aucun écart d'acquisition n'est comptabilisé. Dans le cas d'une acquisition d'actifs, le montant affecté à la recherche et au développement acquis au cours du processus (IPR & D) sans utilisation future alternative est imputé aux coûts à la date d'acquisition.

Reconnaissance des ventes

La société a adopté ASC 606, Revenu de contrats avec clients (ASC 606), le 1er janvier 2018, en utilisant la méthode de transition modifiée avec effet rétroactif. Il y avait non ajustement du solde d'ouverture du déficit accumulé de la société à la suite de l'approbation de cette note d'orientation.

En vertu de l'ASC 606, l'entreprise comptabilise les produits lorsque son client acquiert le contrôle des biens ou services promis, pour un montant qui reflète la compensation que l'entreprise s'attend à recevoir en échange de ces biens ou services. Pour déterminer la comptabilisation des produits pour les programmes qui, selon la société, entrent dans le champ d’application de l’ASC 606, la société exécute les cinq étapes suivantes: (i) identification des contrats avec un client; (ii) identifier les obligations de prestation stipulées dans le contrat; (iii) déterminer le prix de transaction; (iv) affecter le prix de transaction aux obligations de prestation stipulées dans le contrat; et (v) comptabiliser les produits lorsque (ou si) la société remplit une obligation de performance. Le


La société applique le modèle en cinq étapes aux contrats uniquement lorsqu'il est probable que la société recevra l'indemnisation à laquelle elle a droit en échange des biens ou des services qu'elle transfère au client. Au début du contrat, une fois que le contrat est défini dans le champ d'application de l'ASC 606, l'entreprise évalue les biens ou services promis dans chaque contrat et détermine les obligations de prestation et détermine si chaque bien ou service promis est distingué. La société comptabilise ensuite en produits le montant du prix de transaction affecté à l'obligation de prestation respective lorsque (ou si) l'obligation de prestation est remplie. La société évalue la durée du contrat en fonction de la période contractuelle au cours de laquelle la société a des droits et obligations exécutoires.

Les frais variables résultant de ventes ou de redevances d'utilisation, promis en échange d'une licence de propriété intellectuelle de la société, sont comptabilisés ultérieurement (i) lors de la vente ultérieure du produit ou (ii) de l'obligation de prestation à laquelle une partie ou la totalité des redevances liées aux ventes ont été affectées et sont respectées.

La société comptabilise un actif sur contrat au regard de son droit conditionnel à une compensation pour les obligations de prestation remplies. Les débiteurs sont enregistrés lorsque le droit au remboursement devient inconditionnel. Une obligation contractuelle est comptabilisée pour les paiements reçus avant que l’obligation d’exécution correspondante ne soit remplie.

Accord de commercialisation

La société tire des revenus de son accord de commercialisation avec Collegium, aux termes duquel la société a accordé à Collegium le droit de commercialiser la franchise de produits pour la douleur NUCYNTA aux États-Unis. La société a conclu l'accord de commercialisation en décembre 2017, entré en vigueur en janvier 2018, et l'a modifié en août 2018 et à nouveau en novembre 2018. La société considère ses obligations de prestation comme une série de biens ou de services distincts essentiellement identiques et avoir le même modèle de transfert. Avant la modification de novembre 2018, les frais pour les services de licence et de facilitation étaient fixes et étaient reconnus au prorata pendant la durée du contrat. Suite à la modification de novembre 2018, les paiements de redevances dus à la société par Collegium représentent, conformément aux termes de l’accord de commercialisation, un droit variable assujetti à l’exception de redevances basée sur la vente pour les licences de propriété intellectuelle, car tel que défini dans & # 39; Note 4. Revenu »est la composante prédominante de ce régime.

La société est responsable des paiements de redevances à un tiers liés à la vente de NUCYNTA. Selon les termes de l'accord de commercialisation, une partie de ces paiements est transférée de Collegium à un tiers et une partie est à la charge de la société. Après le changement de novembre 2018, Collegium rembourse à la Société toutes les redevances versées à la tierce partie. Comme la société ne commercialise pas activement NUCYNTA, ces redevances sont systématiquement comptabilisées par rapport aux ventes nettes sous-jacentes du produit et sont comptabilisées en tant qu’ajustements bruts / nets dans l’accord de commercialisation, nets dans les états de la société.

Vente de produits

La société vend des produits commerciaux aux grossistes, aux pharmacies spécialisées et aux pharmacies de détail. Les produits des ventes de produits sont comptabilisés lorsque la propriété a été transférée au client et que le client a pris en charge les risques et les avantages de la propriété, qui surviennent généralement lors de la livraison au client. L'obligation de performance de la société consiste à livrer les produits au client. L'obligation de performance est remplie à la livraison. Le prix de la transaction comprend un prix de facturation fixe et des frais de vente variables pour les produits, y compris les remises, les remises et les retours. Le produit des ventes de produits est comptabilisé après déduction des réserves applicables pour ces droits de vente de produits. Les créances liées aux ventes de produits sont généralement recouvrées une à deux mois après la livraison.

Surtaxes sur les ventes de produits – La société considère les surtaxes à la vente de produits comme des frais variables. Elle évalue et reconnaît les surtaxes sur les ventes de produits en tant que réduction des ventes de produits au cours de la période au cours de laquelle les produits correspondants sont comptabilisés. Les honoraires pour les ventes de produits sont basés sur les montants réels ou estimés dus sur les ventes associées. Ces estimations prennent en compte les termes des accords passés avec les clients, les retours historiques de produits, les remises prises, les niveaux de stock estimés dans le canal de distribution, la durée de conservation du produit et des événements de marché spécifiques connus, tels que des prix concurrentiels et des lancements de nouveaux produits. La société utilise la méthode la plus probable pour estimer les accords de vente de produits. Si les résultats futurs réels s'écartent des estimations de la société, celle-ci devra peut-être ajuster ces estimations, ce qui pourrait avoir une incidence sur les ventes et le chiffre d'affaires du produit au cours de la période d'ajustement. Les allocations de vente de la société comprennent:

Retours de produits – La société permet aux clients de retourner des produits avec un crédit lié à ce produit dans un délai de six mois avant et jusqu'à 12 mois après la date de péremption du produit. La société estime le retour du produit et le crédit associé sur NUCYNTA ER et NUCYNTA, Gralise, CAMBIE, Zipsor et Lazanda. Les estimations des retours sont basées sur les tendances historiques des rendements par produit ou des produits comparables, en tenant compte de la durée de vie du produit à ce moment-là.


des tendances des expéditions, des expéditions et des recettes, des niveaux de distribution estimés des canaux de distribution et de la prise en compte de l'introduction de produits concurrents. La société décline toute responsabilité financière pour le retour des produits NUCYNTA ER et NUCYNTA précédemment vendus par Janssen Pharma ou du produit Lazanda précédemment vendus par Archimedes Pharma US Inc. En vertu de l'accord de commercialisation conclu avec Collegium pour NUCYNTA ER et NUCYNTA et de la cession de Lazanda à Slán, la Société n'est responsable financièrement que des retours de produits pour les produits vendus par la société, identifiés par des numéros de lot spécifiques.

La durée de conservation de NUCYNTA est ER et NUCYNTA. 24 mois à 36 mois à compter de la date de production de la tablette. La durée de conservation de Gralise est 24 mois à 36 mois à compter de la date de production de la tablette. La durée de conservation du CAMBIA est 24 mois à 48 mois à compter de la date de fabrication. La durée de conservation de Zipsor est 36 mois à compter de la date de production de la tablette. La durée de conservation de Lazanda est 24 à 36 mois à compter de la date de fabrication. En raison de la durée de conservation des produits de la société et de la politique de retour émettant des crédits en ce qui concerne les produits retournés dans les six mois avant et jusqu'à 12 mois après la date d'expiration du produit, il peut s'écouler un laps de temps important entre la date d'expédition du produit et le moment où la société accorde un crédit pour le produit retourné. Par conséquent, la société pourrait avoir besoin d'ajuster ces estimations, ce qui pourrait avoir une incidence sur les ventes et les produits des produits vendus au cours de la période d'ajustement.

Kortingen voor groothandel en detailhandelapotheek – Het bedrijf biedt contractueel bepaalde kortingen aan bepaalde groothandelsdistributeurs en detailhandelsapotheken die er rechtstreeks bij kopen. Deze kortingen worden ofwel op het moment van verzending van de factuur afgenomen of op kwartaalbasis aan de klant betaald, une à deux maanden na het kwartaal waarin het product naar de klant is verzonden.

Prompt Pay kortingen – Het bedrijf biedt contantkortingen aan haar klanten (in het algemeen 2% van de verkoopprijs) als een stimulans voor snelle betaling. Op basis van de ervaring van het bedrijf verwacht het bedrijf dat zijn klanten de betalingsvoorwaarden naleven om de contantkorting te verdienen.

Kortingsprogramma's voor patiënten – Het bedrijf biedt ondersteuningsprogramma's voor co-pay voor patiëntenkorting waarbij patiënten bepaalde kortingen krijgen op hun recepten bij deelnemende apotheken. De kortingen worden ongeveer door het bedrijf vergoed une maand nadat de voorschriften waarop de korting van toepassing is, zijn ingevuld.

Medicaid-kortingen – Het bedrijf neemt deel aan Medicaid-kortingsprogramma's, die hulp bieden aan bepaalde patiënten met een laag inkomen op basis van de richtlijnen van elke afzonderlijke staat met betrekking tot geschiktheid en diensten. Onder de Medicaid-kortingsprogramma's betaalt de onderneming in het algemeen een korting aan elke deelnemende staat deux à trois maanden na het kwartaal waarin de aan de korting onderworpen voorschriften zijn ingevuld.

Terugboekingen — Het bedrijf biedt kortingen aan geautoriseerde gebruikers van de Federal Supply Schedule (FSS) van de Algemene Dienstenadministratie onder een FSS-contract met het Department of Veterans Affairs. Deze federale entiteiten kopen producten van de groothandelsdistributeurs tegen een gereduceerde prijs, en de groothandelsdistributeurs brengen dan het verschil terug tussen de huidige verkoopprijs en de prijs die de federale entiteit voor het product heeft betaald.

Kortingen voor beheerde zorg — Het bedrijf biedt kortingen onder contracten met bepaalde beheerde zorgverleners. Het bedrijf betaalt in het algemeen beheerde zorgkortingen une à trois maanden na het kwartaal waarin de aan de korting onderworpen voorschriften zijn ingevuld.

Medicare deel D dekking kloof kortingen – Het bedrijf neemt deel aan het Medicare deel D dekking gat korting programma waaronder het kortingen geeft op recepten die binnen de dekking "donut hole" vallen. Het bedrijf betaalt in het algemeen Medicare Deel D-dekking Kortingen deux à trois maanden na het kwartaal waarin de aan de korting onderworpen voorschriften zijn ingevuld.

royalties

Voor regelingen die op verkoop gebaseerde royalty's omvatten en de licentie wordt beschouwd als het overheersende item waarop de royalty's betrekking hebben, neemt de onderneming royalty-inkomsten op aan het einde van (1) wanneer de gerelateerde verkopen plaatsvinden, of (2) wanneer de prestatieverplichting waaraan een deel of alle royalty's zijn toegewezen, is voldaan (of gedeeltelijk voldaan).

Mijlpalen

Voor regelingen die mijlpalen bevatten, erkent het bedrijf dergelijke inkomsten met behulp van de meest waarschijnlijke methode. Als onderdeel van de toepassing van ASC 606 heeft de onderneming geëvalueerd of de toekomstige mijlpalen hadden moeten worden opgenomen als onderdeel van de transactieprijs in perioden vóór 1 januari 2018. De onderneming concludeerde dat vanwege ontwikkelings- en regelgevingsrisico's


toentertijd was het waarschijnlijk dat er een aanzienlijke omzetomslag had kunnen plaatsvinden. Aan het einde van elke volgende rapportageperiode evalueert het bedrijf de waarschijnlijkheid of het behalen van elke dergelijke mijlpaal en eventuele gerelateerde beperkingen en past het indien nodig zijn schattingen van de totale transactieprijs aan. Dergelijke aanpassingen worden geregistreerd op een cumulatieve inhaalbasis, die de inkomsten in de aanpassingsperiode zou beïnvloeden.

leases

Het bedrijf beoordeelt contracten voor leaseovereenkomsten bij aanvang. Operating right-of-use (ROU) assets and liabilities are recognized at the lease commencement date equal to the present value of future lease payments using the implicit, if readily available, or incremental borrowing rate based on the information readily available at the commencement date. ROU assets include any lease payments as of commencement and initial direct costs but exclude any lease incentives. Lease and non-lease components are generally accounted for separately and the Company recognizes operating lease expense straight-line over the term of the lease. Operating leases are included in other long term assets, other current liabilities, and other long term liabilities in the consolidated balance sheet.

The Company has elected to keep leases with an initial term of 12 months or less off of the balance sheet. The Company will recognize the cost of those leases in the Consolidated Statements of Operations on a straight-line basis over the lease term.

Stock Based Compensation

The Company uses the Monte Carlo simulation method to determine the fair value of performance-based restricted stock units and the Black Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (ESPP) shares. The determination of the fair value of these awards on the date of grant is affected by the Company’s stock price as well as assumptions, which include the Company’s expected term of the award, the expected stock price volatility, risk free interest rate and expected dividends over the expected term of the award.  The Company uses historical option exercise data to estimate the expected term of the options. The Company estimates the volatility of its common stock price by using the historical volatility over the expected term of the award. The Company bases the risk free interest rate on U.S. Treasury zero coupon issues with terms similar to the expected term of the award as of the date of grant. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the valuation models. The fair value of restricted stock units equals the market value of the underlying stock on the date of grant.

As a result of adopting ASU 2016-09 Improvements to Employee Share-Based Payment Accounting, the Company made an accounting policy election to account for forfeitures as they occur, rather than estimating expected forfeitures at the time of the grant.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases. This guidance enhances comparability and transparency among organizations by requiring the recognition of right-of-use assets and liabilities on the balance sheet for both financing and operating leases greater than 12 months. The Company adopted the standard as of January 1, 2019 using the modified retrospective approach with cumulative effect. There was no adjustment to the Company's opening balance of accumulated deficit resulting from the adoption of this guidance. In addition, the Company elected the package of practical expedients, which among other things, allowed for the carryforward of the historical lease classification. The Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

The adoption of the new standard resulted in the recognition of additional operating lease assets and lease liabilities of 3,7 millions de dollars et $8.9 million, respectively, as of January 1, 2019. The recognition of lease assets was offset by deferred rent and tenant improvement allowances of $5.2 million, which were recognized by the Company as of December 31, 2018. Had the Company not adopted this new lease guidance the ROU asset and liability would not have been recorded and the deferred rent and tenant improvement allowances capitalized against the ROU asset would have remained on the balance sheet in other current liabilities and other long term liabilities. The new standard did not materially affect the Company’s consolidated net income nor have a notable impact on its liquidity. The standard had no impact on the Company’s debt-covenant compliance under its current agreements.


Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses (Topic 326) which changes the methodology to be used to measure the credit losses for certain financial instruments and financial assets, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with a current expected credit loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of the new standard on the Company’s condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-18 Collaborative Arrangements which clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers. The update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. This update will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The new standard should be applied retrospectively to the date of initial application of ASC 606 and early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2018-18 on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement Disclosure Framework which is part of a broader disclosure framework project by the FASB to improve the effectiveness of disclosures by more clearly communicating the information to the user. Modifications to the required disclosures are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact on disclosures.

In August 2018, the FASB issued ASU No. 2018-15 Accounting for Cloud Computing Arrangements (Subtopic 350-40) which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement. Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively. The Company does not expect the adoption of the guidance under the new standard to materially affect its financial position or results of operations.


OPMERKING 2. FAIR VALUE

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of 30 september 2019 et December 31, 2018 (in thousands):

September 30, 2019

Financial Statement Classification

Level 1

Level 2

Level 3

Total

Assets:

Collegium warrants

Investments

$

$

3,884

$

$

3,884

Total

$

$

3,884

$

$

3,884

Passif:

Contingent consideration—Zipsor

Contingent consideration liability

$

$

$

430

$

430

Contingent consideration—CAMBIA

Contingent consideration liability

551

551

Total

$

$

$

981

$

981

December 31, 2018

Financial Statement Classification

Level 1

Level 2

Level 3

Total

Assets:

Money market funds

Trésorerie et équivalents de trésorerie

$

11

$

$

$

11

Commercial paper

Trésorerie et équivalents de trésorerie

14,028

14,028

Agency bond

Trésorerie et équivalents de trésorerie

1,250

1,250

Collegium warrants

Investments

8,784

8,784

Total

$

11

$

24,062

$

$

24,073

Passif:

Contingent consideration—Zipsor

Contingent consideration liability

$

$

$

531

$

531

Contingent consideration—CAMBIA

Contingent consideration liability

507

507

Total

$

$

$

1,038

$

1,038

The Company invests its cash in money market funds and marketable securities including U.S. Treasury and government agency securities, and commercial paper. These investments are all highly liquid investments with a maturity at date of purchase of three months or less. These securities are carried at fair value, which is based on readily available quoted market information. Realized gains or losses have been insignificant and are included in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income.

The fair value of the warrants to purchase Collegium’s common stock is calculated using the Black-Scholes option pricing model. For the three and nine months ended 30 september 2019, the Company recorded a loss of $1.4 million et $4.9 million, respectively, in Other (expense) income, net for the change in fair value of the Collegium warrants. The Collegium warrants were obtained in November 2018 and therefore there were no fair value adjustments recognized during the three and nine months ended September 30, 2018.


The fair value measurement of the contingent consideration obligations arises from the Zipsor and CAMBIA acquisitions and relates to fair value of the potential future contingent milestone payments and royalties payable under the respective agreements which are determined using Level 3 inputs. The key assumptions in determining the fair value are the discount rate and the probability assigned to the potential milestones and royalties being achieved. At each reporting date, the Company re-measures the contingent consideration obligation arising from the above acquisitions to their estimated fair values. Any changes in the fair value of contingent consideration resulting from a change in the underlying inputs are recognized in operating expenses until the contingent consideration arrangement is settled. Changes in the fair value of the contingent consideration obligation resulting from the passage of time are recorded within interest expense until the contingent consideration is settled. The table below provides a summary of the changes in fair value recorded in interest expense and selling, general and administrative expenses for the three and nine months ended 30 september 2019 et 2018 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Fair value, beginning of the period

$

953

$

967

$

1,038

$

1,613

Changes in fair value recorded in interest expense

28

27

85

106

Changes in fair value recorded in selling, general and administrative expenses

(117

)

(142

)

(658

)

Royalties and milestone paid

(184

)

Fair value, end of the period

$

981

$

877

$

981

$

877

The Company estimates the fair value of its convertible notes based on a market approach which represents a Level 2 valuation. The estimated fair value of the 2,50% Convertible Senior Notes Due 2021, which the Company issued on September 9, 2014, was approximately $108.0 million (par value $145.0 million) and $231.8 million (par value $345.0 million) as of 30 september 2019 et December 31, 2018, respectively. The estimated fair value of the 5,00% Convertible Senior Notes Due 2024, which the Company issued on August 13, 2019, was approximately $91.9 million (par value $120.0 million) as of September 30, 2019. The principal amount of the Senior Notes (as defined in “Note 9. Debt”), approximates their fair value as of 30 september 2019 et December 31, 2018, respectively and represents a Level 2 valuation. When determining the estimated fair value of the Company’s debt, the Company uses a commonly accepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk.

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the three and nine months ended 30 september 2019 et 2018.


OPMERKING 3. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period, plus potentially dilutive common shares, consisting of shares issuable in connection with stock options, restricted stock units (RSUs), performance-based restricted stock units (PSUs), the ESPP and convertible debt. The Company uses the treasury-stock method to compute diluted earnings per share with respect to its stock options and equivalents. The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible debt. For purposes of this calculation, options to purchase stock, including stock options, RSUs, PSUs and the ESPP, are considered to be potential common shares and are only included in the calculation of diluted net income (loss) per share when their effect is dilutive. Basic and diluted earnings per common share are calculated as follows (in thousands, except for per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Basic net income (loss) per share

netto inkomen (verlies)

$

3,331

$

48,270

$

(24,575

)

$

61,046

Denominator

72,747

63,917

67,332

63,714

Basic net income (loss) per share

$

0.05

$

0.76

$

(0.36

)

$

0.96

Diluted net income (loss) per share

Numerator:

netto inkomen (verlies)

$

3,331

$

48,270

$

(24,575

)

$

61,046

Add: Interest expense on convertible debt, net of tax

5,340

15,815

Denominator:

Denominator for basic net income (loss) per share

72,747

63,917

67,332

63,714

Add effect of diluted securities:

Stock options and equivalents and convertible debt

18,773

18,568

Denominator for diluted net income (loss) per share

72,747

82,690

67,332

82,282

Diluted net income (loss) per share

$

0.05

$

0.65

$

(0.36

)

$

0.93

The following table sets forth outstanding potentially dilutive common shares that are not included in the computation of diluted net income (loss) per share because to do so would be anti-dilutive (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

2.50% Convertible Notes due 2021

12,313

16,038

5.00% Convertible Notes due 2024

20,262

6,828

Stock options and equivalents

6,718

2,741

6,618

3,359

Total potentially dilutive common shares

39,293

2,741

29,484

3,359


OPMERKING 4. REVENUE

Disaggregated Revenue

The following table summarizes revenue from contracts with customers for the three and nine months ended 30 september 2019 et 2018 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Product sales, net

Gralise

$

14,931

$

14,630

$

46,008

$

43,272

CAMBIA

8,135

10,365

23,701

24,870

Zipsor

3,273

4,441

9,028

13,175

Total neurology product sales, net

26,339

29,436

78,737

81,317

NUCYNTA products

1,254

11

1,153

18,782

Lazanda

(91

)

(12

)

(1

)

528

Total product sales, net

27,502

29,435

79,889

100,627

Commercialization agreement:

Commercialization rights and facilitation services, net

27,304

27,781

89,163

87,055

Revenue from transfer of inventory

55,705

Royalties and milestone revenue

341

20,277

1,226

25,784

Total revenues

$

55,147

$

77,493

$

170,278

$

269,171

NUCYNTA product sales for the nine months ended September 30, 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. During the first quarter of 2018, in connection with the Collegium transaction, the Company recognized revenue of $12.5 million related to the release of NUCYNTA sales reserves which were primarily recorded in the fourth quarter of 2017, as financial responsibility for those reserves transferred to Collegium upon closing of the Commercialization Agreement. During the three and nine months ended 30 september 2019, the Company recognized sales reserve estimate adjustments related to sales recognized for NUCYNTA and Lazanda in prior periods.

Original Commercialization Agreement with Collegium

In December 2017, the Company, Collegium and Collegium NF, LLC, a Delaware limited liability company and wholly owned subsidiary of Collegium (Newco), entered into a Commercialization Agreement (Commercialization Agreement), pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the United States.  Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing. The Company also agreed to provide services to Collegium, including to arrange for the supply of NUCYNTA products by the Company’s existing contract manufacturing organizations (CMOs) (the Facilitation Services). The Company identified the following trois promised goods and services under the Commercialization Agreement: (1) the license to commercialize the NUCYNTA pain products (License), (2) services to arrange for supplies of NUCYNTA pain products using the Company’s existing contract manufacturing contracts with third parties (Facilitation Services); and (3) the transfer of control of all NUCYNTA finished goods held at closing (Inventory Transfer).

The Inventory Transfer was deemed to be a distinct performance obligation which was completed during the first quarter of 2018. The Company concluded that the License and the Facilitation Services are not distinct from one another as the Commercialization Agreement does not grant to Collegium a license to manufacture NUCYNTA. The Company (i) exclusively controls the intellectual property underlying the NUCYNTA products for the United States market, (ii) retains responsibility for facilitating NUCYNTA product supply through its CMOs, and (iii) exclusively maintains all CMO contractual relationships. As a result, Collegium’s right to commercialize NUCYNTA is inherently dependent upon the Facilitation Services. Because (i) Collegium is contractually required to use the Facilitation Services to arrange for product supply and (ii) tapentadol, the active pharmaceutical ingredient used in NUCYNTA, is a Schedule II controlled substance for which manufacturing arrangements are not easily transferred or bypassed, there is strong interdependency between the License and the Facilitation Services. These Facilitation Services are administrative in nature but necessary for the commercialization right to have utility to Collegium.


In January 2018, the Company determined the total fixed elements of the transaction price to be $553.2 million, which consisted of $537.0 million in total annual minimum royalty payments for years 2018 through 2021, $10.0 million upfront fee, and a 6,2 millions de dollars payment for NUCYNTA finished goods inventory. The Company determined that the duration of the Commercialization Agreement began on the effective date of January 9, 2018 and lasts through December 31, 2021, including the minimum royalty period and the period in which Collegium would incur a $25.0 million termination penalty on terminating the Commercialization Agreement. Beginning January 1, 2022 and for each year of the Commercialization Agreement thereafter, royalties are: (i) 58% of net sales of NUCYNTA up to $233.0 million, payable quarterly within 45 days of the end of each calendar quarter, plus (ii) 25% of annual net sales of NUCYNTA between $233.0 million et $258.0 million, plus (iii) 17.5% of annual net sales of NUCYNTA above $258.0 million. Payments described in clauses (ii) and (iii) hereof will be paid annually within 60 days of the end of the calendar year.

The portion of the transaction price allocated to the Inventory Transfer was $55.7 million and was recognized on the closing date as the control of such inventory was transferred to Collegium. The portion of the transaction price allocated to the License and Facilitation Services, as a combined performance obligation, was $497.5 million and would be recognized ratably through December 31, 2021.

In addition, Collegium assumed responsibility for a portion of the royalties owed by the Company to a third party on sales of NUCYNTA. The royalties owed by Collegium to the third party are 14% of sales with the Company ensuring a minimum royalty of $34.0 million per year on net sales of NUCYNTA greater than $180.0 million. The Company was obligated to cover any shortfall between the minimum royalty amount of $34.0 million and the amounts paid to the third party by Collegium for each of the years ended December 31, 2018 through 2021, as a result of which the Company could have been obligated to pay up to $8.8 million per year for each of the years ended December 31, 2018 through 2021.

Amended Commercialization Agreement with Collegium

On November 8, 2018, the Company, Collegium and Newco entered into a third amendment to the Commercialization Agreement (Commercialization Amendment). Pursuant to the Commercialization Amendment, the royalties payable by Collegium to the Company in connection with Collegium’s commercialization of NUCYNTA were amended such that effective as of January 1, 2019 through December 31, 2021, the Company will receive: (i) 65% of net sales of NUCYNTA up to $180.0 million, plus (ii) 14% of annual net sales of NUCYNTA between $180.0 million and up to $210.0 million, plus (iii) 58% of annual net sales of NUCYNTA between $210.0 million et $233.0 million, plus (iv) 20% of annual net sales of NUCYNTA between $233.0 million and up to $258.0 million, plus (v) 15% of annual net sales of NUCYNTA above $258.0 million. The Commercialization Amendment does not change the royalties that the Company will receive on annual net sales of NUCYNTA by Collegium for the period beginning January 1, 2022 and for each year of the Commercialization Agreement term thereafter.

In addition, the Commercialization Amendment provides that Collegium shall reimburse the Company for the amount of any minimum annual royalties paid by the Company to the third party on net sales of NUCYNTA during the first four years of the Commercialization Agreement beginning in 2019. The Commercialization Amendment also provides for Collegium to share certain costs related to the License. The reimbursement and the cost sharing are considered variable consideration. The Commercialization Amendment is being accounted for prospectively.

In connection with the Commercialization Amendment, Collegium issued the Company a warrant to purchase up to 1,041,667 shares of Collegium common stock at an exercise price of $19.20 per share (Warrant). The Warrant is exercisable for a period of four years and contains customary terms, including with regard to net exercise. The Warrant was valued at $8.8 million as of the date of the Commercialization Amendment and is considered to be a component of the fixed consideration associated with the Commercialization Agreement. This Warrant is included in Investments on the Company’s Condensed Consolidated Balance Sheet, however, as it is non-cash it does not impact investing cash flows.

In November 2018, the Company determined the total fixed elements of the transaction price of the Commercialization Agreement to be $157.0 million, which consisted of $132.0 million in total annual minimum royalty payments for 2018, the $10.0 million upfront fee, the 6,2 millions de dollars payment for NUCYNTA finished goods inventory and the $8.8 million attributed to the Warrant. There were no new performance obligations following the modification of the Commercialization Agreement and at the time of the modification, the remaining periods in the series of services related to the single combined performance obligation to deliver the license and provide facilitation services are distinct from those prior to the modification. As a result, the modification was accounted for as a termination of the old arrangement and the entering into of a new agreement, in accordance with the guidance of ASC 606.


Pursuant to the Commercialization Amendment, Collegium may only terminate the Commercialization Agreement after December 31, 2020, with 12-months’ notice. In the event any such termination notice has an effective date of termination prior to December 31, 2022, then Collegium shall pay a $5.0 million termination fee to the Company concurrent with the delivery of such notice. The Company determined that the $5.0 million termination fee is not substantive and therefore the duration of the Commercialization Agreement is unchanged by the Commercialization Amendment and lasts through December 31, 2021, which is consistent with the contractual period in which the Company and Collegium have enforceable rights and obligations.

The Commercialization Amendment provides that the Company may terminate the Commercialization Agreement upon 60 days’ prior written notice to Collegium in the event that (i) the net sales of NUCYNTA by Collegium during any period of 12 consecutive calendar months ending on or before December 31, 2021 are less than $180.0 million, or (ii) the net sales of NUCYNTA by Collegium during any period of 12 consecutive calendar months commencing on or after January 1, 2022 are less than $170.0 million.

Revenue from the Commercialization Agreement

For the three and nine months ended 30 september 2019, the Company recognized net revenue from the Commercialization Agreement of $27.3 million et $89.2 million, respectively. This included variable royalty revenue for the three and nine months ended September 30, 2019 of $30.2 million et $94.2 million, respectively. Variable royalty revenue became effective for sales beginning January 1, 2019 as recognition of such royalties are constrained by the sales-based royalty exception related to intellectual property. Other components of net revenue from the Commercialization Agreement include the amortization of revenue from contract liabilities arising from the warrants and prepayments received, amortization of the contract asset, and variable consideration revenue for reimbursement of certain shared costs. In addition, during the three and nine months ended September 30, 2019, the Company recognized $2.9 million et $5.0 million of net expense related to the third-party royalties which have been paid by Collegium on behalf of Assertio. It is the Company’s expectation that, in accordance with the amended Commercialization Agreement, Collegium will pay the full royalty owed to the third-party in 2019, 2020 and 2021 and that such amounts, over the course of the calendar year, will have no net impact to the Company.

For the three and nine months ended September 30, 2018, the Company recognized royalty revenue from the Commercialization Agreement of $27.8 million et $87.1 million, respectively. The Company also recognized $55.7 million of revenue related to the transfer of inventory upon closing in January 2018.

Contract Assets

The following table presents changes in the Company’s contract assets as of 30 september 2019 (in thousands):

Balance as of

Balance as of

December 31, 2018

Additions

Deductions

30 september 2019

Contract assets:

Contract asset – CAMBIA Canada

$

$

300

$

$

300

Contract asset – Collegium, net

2,416

579

(1,024

)

1,971

$

2,416

$

879

$

(1,024

)

$

2,271

The Collegium contract asset, net represents the conditional right to consideration for completed performance under the Commercialization Agreement arising from the transfer of inventory to Collegium on the date of closing of the agreement in January 2018 net of the contract liability of $10.0 million resulting from the upfront payment received and the $8.8 million of warrants received. Portion of the contract asset are reclassified to accounts receivable when the right to consideration becomes unconditional. À partir de 30 september 2019, $0.8 million et $1.2 million of the Collegium contract asset, net has been recorded within “Prepaid and other current assets” and “Other long-term assets,” respectively.


Collaboration and License Agreements

Ironwood Pharmaceuticals, Inc. The future contingent milestones under the Ironwood Agreement are considered variable consideration and are estimated using the most likely method. As part of adopting ASC 606, the Company evaluated whether the future milestones under the Ironwood Agreement should have been included as part of the transaction price in periods before January 1, 2018. The Company concluded that because of development and regulatory risks at the time, it was probable that a significant revenue reversal could have occurred. Accordingly, the associated future contingent milestone values were not included in the transaction price for periods before January 1, 2018. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price.

Slán Medicinal Holdings Limited In November 2017, the Company entered into definitive agreements (Slán Agreements) with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which the Company acquired Slán’s rights to market long-acting cosyntropin in the U.S. and Canada. As outlined in the Slán Agreements, each party will support the development, including clinical development, of the licensed product and efforts to obtain regulatory approval of the initial NDA. The Slán Agreements also detail commercialization activities which are included in the commercialization plan. Subsequent to approval of the initial NDA, Assertio and Slán will share in the net sales of long-acting cosyntropin for a 10-year period (after which time the product will revert back to Slán). The Company has committed to invest $15.0 million in the collaboration with Slán for the commercialization efforts of long-acting cosyntropin. On October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin. The primary focus of the CRL relates to the FDA's determination that certain pharmacodynamic parameters were not adequately achieved. We and our development partner are reviewing the CRL and will determine if the FDA’s comments can be adequately addressed. As of December 31, 2018 and September 30, 2019 the Company had $4.6 million et $5.2 million, respectively, of development expenses reimbursable by Slán and recognized within Prepaid and Other Assets on the Company’s Condensed Consolidated Balance Sheet.

OPMERKING 5. STOCK-BASED COMPENSATION

The following table presents stock-based compensation expense recognized for stock options, stock awards, RSUs, PSUs and the Company’s ESPP in the Company’s Condensed Consolidated Statements of Operations (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Cost of sales

$

28

$

$

78

$

30

Research and development expense

165

270

514

337

Selling, general and administrative expense

2,811

2,674

7,748

7,523

Restructuring

(173

)

2,385

Total

$

3,004

$

2,771

$

8,340

$

10,275

At 30 september 2019, l'entreprise avait $1.5 million of total unrecognized compensation expense related to stock option grants that will be recognized over an average vesting period of 2.24 years and $18.0 million of total unrecognized compensation expense related to RSUs and PSUs that will be recognized over an average vesting period of 2.59 years.

Tijdens de nine months ended 30 september 2019 the Company granted 2.5 million RSUs at an average fair market value of $4.11 par part et 0.6 million PSUs at an average fair market value of $6.87 per share. The fair value of restricted stock units is determined using the closing stock price on the date of grant and the fair value of the performance RSUs is determined using a Monte Carlo simulation method.


OPMERKING 6. INVENTORIES, NET

Inventories, net, consist of raw materials, work in process and finished goods and are stated at the lower of cost or market and consist of the following (in thousands):

30 septembre
2019

31 décembre
2018

Raw materials

$

824

$

1,376

Work-in-process

776

732

Finished goods

1,714

1,288

Total

$

3,314

$

3,396

OPMERKING 7. ACCOUNTS RECEIVABLES, NET

Accounts receivables, net, consist of the following (in thousands):

September 30,
2019

December 31,
2018

Receivables related to product sales, net

$

34,729

$

23,078

Receivables from Collegium

8,423

14,011

Other

275

122

Total accounts receivable, net

$

43,427

$

37,211

OPMERKING 8. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

September 30,
2019

December 31,
2018

Accrued compensation

$

5,677

$

5475

Accrued royalties

5,799

2,773

Accrued restructuring and one-time termination costs

435

1,578

Accrued taxes payable

9,139

Other accrued liabilities

12,220

21,535

Total accrued liabilities

$

33,270

$

31,361

OPMERKING 9. DEBT

Senior Notes

On April 2, 2015, the Company issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for aggregate gross proceeds of approximately $562.0 million pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement), among the Company and Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., BioPharma Secured Investments III Holdings Cayman LP, Inteligo Bank Ltd. and Phemus Corporation (collectively, the Purchasers) and Deerfield Private Design Fund III, L.P., as collateral agent. The Company used $550.0 million of the net proceeds received upon the sale of the Senior Notes to fund a portion of the Purchase Price paid to Janssen Pharma in connection with the NUCYNTA acquisition. The Company incurred debt issuance costs of $0.5 million for 2015.


The Senior Notes will mature on April 14, 2021 (unless earlier prepaid or repurchased), are secured by substantially all of the assets of the Company and any subsidiary guarantors, and bear interest at the rate equal to the lesser of (i) 9.75% over the three month London Inter-Bank Offer Rate (LIBOR), subject to a floor of 1.0% and (ii) 11.95% (through the third anniversary of the purchase date) and 12.95% thereafter. The interest rate is determined at the first business day of each fiscal quarter, commencing with the first such date following April 2, 2015. The interest rate for the three months ended 30 september 2019 et 2018 était 12,08% et 12.15%, respectively.

In April 2017, the Company prepaid and retired $100.0 million of the Senior Notes and paid a $4.0 million prepayment fee; and in November 2017, the Company prepaid and retired an additional $10.0 million of the Senior Notes and paid a $0.4 million prepayment fee. The Company recorded a net loss on prepayment of the Senior Notes of $5.9 million which represented the prepayment fees of $4.4 million and the immediate recognition of unamortized balances of debt discount and debt issuance costs of $1.5 million in 2017. This loss is recorded as a loss on prepayment of Senior Notes in the consolidated statements of operations for 2017.

The remaining $182.5 million of Senior Notes can be prepaid, at the Company’s option or following a Major Transaction or asset disposition.

The Senior Notes and related indenture contain customary covenants, including, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates.

In January 2019, the Company entered into a Fourth Amendment to the Note Purchase Agreement (the Fourth Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015, among the Company, the other credit parties party thereto, the purchasers party thereto and Deerfield. Pursuant to the Fourth Amendment, the minimum EBITDA covenant was replaced with a senior secured debt leverage ratio covenant and a minimum net sales covenant, the prepayment premium was adjusted to be 3,0% of the principal amount of notes prepaid on or prior to April 14, 2020 and 1.0% of the principal amount of notes prepaid thereafter, flexibility to sell certain royalty assets and/or modify the terms thereof was added, certain definitions were amended and certain other amendments were made. The Company paid a $3.2 million upfront non-refundable amendment fee to the Purchasers in the first quarter of 2019 which was capitalized and is being amortized over the remaining term of the Senior Notes using the effective interest method.

In August 2019, the Company entered into a Fifth Amendment to the Note Purchase Agreement (the Fifth Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015. The Fifth Amendment modified certain provision of the Note Purchase Agreement to facilitate the exchange of the Company’s 2,50% Convertible Senior Notes Due 2021, including providing the Company the ability to use up to $30.0 million in connection with the exchange. The Fifth Amendment included a $4.4 million exit fee due upon the earlier of the maturity date or date of full repayment of the Senior Notes, which was accounted as an increase in discount on the Senior Notes and accrued in Other long-term liabilities on the Condensed Consolidated Balance Sheet. The incremental discount is being amortized over the remaining term of the Senior Notes using the effective interest method.

The principal amount of the Senior Notes is repayable as of 30 september 2019 is as follows (in thousands):

2019 (remainder)

$

20,000

2020

80,000

2021

82,500

Total

$

182,500

The Company is scheduled to make the Senior Notes principal payments of $80.0 million prior to September 30, 2020 and has classified this portion of the Senior Notes within the current liabilities section of the Condensed Consolidated Balance Sheet. The principal payment of $20.0 million due in October 2019 was paid by the Company in October 2019.


The following is a summary of the carrying value of the Senior Notes as of 30 september 2019 et December 31, 2018 (in thousands):

September 30,
2019

December 31,
2018

Principal amount of the Senior Notes

$

182,500

$

282,500

Unamortized debt discount balance

(5,220

)

(2,541

)

Unamortized debt issuance costs

(2,618

)

(1,650

)

Total Senior Notes

$

174,661

$

278,309

The debt discount and debt issuance costs are being amortized as interest expense through April 2021 using the effective interest method. The following is a summary of interest expense for the three and nine months ended 30 september 2019 et 2018 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Contractual interest expense

$

5,736

$

9,517

$

20,544

$

29,383

Amortization of debt discount and debt issuance costs

1,534

886

4,001

2,747

Total interest expense Senior Notes

$

7,270

$

10,403

$

24,545

$

32,130

2,50% Convertible Senior Notes Due 2021

On September 9, 2014, the Company issued $345.0 million aggregate principal amount of 2,50% Convertible Senior Notes Due 2021 (the 2021 Notes) resulting in net proceeds to the Company of $334.2 million after deducting the underwriting discount and offering expenses of $10.4 million and $0.4 million, respectively.

The 2021 Notes bear interest at the rate of 2,50% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1, 2015.

On August 13, 2019, the Company entered into separate, privately negotiated exchange agreements (the Exchange Agreements) with a limited number of holders of the Company’s 2021 Notes. The Company exchanged (the Convertible Note Exchange) $200.0 million aggregate principal amount of the 2021 Notes for a combination of (a) its new $120.0 million aggregate principal amount of 5,00% Convertible Senior Notes due August 15, 2024 (the 2024 Notes), (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock. The Company did not receive any cash proceeds from the issuance of the 2024 Notes or the issuance of the shares of its common stock. In connection with the Convertible Note Exchange a beneficial owner holding more than 10% of the Company’s common stock exchanged $22.0 million in aggregate principal of the 2021 Notes for a combination of $13.2 million in aggregate principal of the 2024 Notes, 1.7 million shares of the Company’s common stock, and $3.5 million in cash.

The Convertible Note Exchange was accounted for in accordance with ASC 470-50, Debt Modifications and Extinguishments. Pursuant to ASC 470-50, the Convertible Note Exchange was deemed to be an extinguishment of debt as there was a substantive modification in the conversion option of the 2024 Notes from 2021 Notes. During the three months ended September 30, 2019, the Company recognized a $26.4 million gain on debt extinguishment, which represented the difference between the carrying value and the fair value of the 2021 Notes just prior to Convertible Note Exchange. The Company also recognized reacquisition of 6,2 millions de dollars in additional paid-in capital related to the equity component of the 2021 Notes based on the excess of the fair value of total considerations provided in the Convertible Note Exchange against the fair value of the 2021 Notes just prior to the Convertible Note Exchange. The components of total consideration given in the Convertible Note Exchange consisted of (a) the new 2024 Notes, (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock. Upon completion of the Convertible Note Exchange the aggregate principal amount of the 2021 Notes was reduced by $200 million to $145.0 million, the unamortized debt discount and debt issuance costs was reduced by $26.1 million à $18.9 million and the carrying amount of the equity component was reduced by 6,2 millions de dollars à $112.8 million.

The closing price of the Company’s common stock did not exceed 130% of the $19.24 conversion price for the required period during the three or nine months period ended 30 september 2019. As a result, the 2021 Notes are not convertible as of 30 september 2019.


The following is a summary of the liability component of the 2021 Notes as of 30 september 2019 et December 31, 2018 (in thousands):

September 30,
2019

December 31,
2018

Principal amount of the 2021 Notes

$

145,000

$

345,000

Unamortized discount of the liability component

(17,016

)

(54,521

)

Unamortized debt issuance costs

(817

)

(2,681

)

Total 2021 Notes

$

127,166

$

287,798

The debt discount and debt issuance costs are being amortized as interest expense through September 2021. The following is a summary of interest expense for the three and nine months ended 30 september 2019 et 2018 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Stated coupon interest

$

1,490

$

2,156

$

5,802

$

6,468

Amortization of debt discount and debt issuance costs

3,499

4,604

13,252

13,551

Total interest expense 2021 Notes

$

4,989

$

6,760

$

19,054

$

20,019

5,00% Convertible Senior Notes Due 2024

On August 13, 2019, as part of the Convertible Note Exchange the Company issued $120.0 million aggregate principal of 2024 Notes which mature on August 14, 2024 and bear interest at a rate of 5.0%, payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020. The 2024 Notes were issued pursuant to the Third Supplemental Indenture (the Third Indenture), dated August 13, 2019, to the indenture of the 2021 Notes, dated September 9, 2014, between the Company and the Bank of New York Mellon Trust Company, N.A.

Holders may convert their 2024 Notes at any time prior to the earlier of (i) the close of business on the trading day immediately preceding the Maturity Date and (ii) if the Company calls the 2024 Notes for optional redemption, the close of business on the second trading day prior to the redemption date. The 2024 Notes will be convertible at an initial conversion rate of 323.5198 shares per 1000 $ in principal amount, equivalent to a conversion price of approximately $3.09 per share. The Company may settle conversions in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. If the conversion obligation is satisfied solely in cash or through payment and delivery of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 consecutive trading day observation period.

Upon the occurrence of a fundamental change (as defined in the Third Indenture) at any time, the holder of the 2024 Notes will have the right to require the Company to repurchase for cash any or all the 2024 Notes, or any portion of the principal amount, that is equal to 1000 $ or a multiple of 1000 $. The price the Company is required to pay equals 100% of the principal amount plus accrued and unpaid interest (up to but excluding the fundamental change purchase date).

On or after August 20, 2020, the Company may redeem for cash all or part of the notes, at its option if the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price is equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon conversion as a result of an optional redemption by the Company the holder will also receive a payment equal to all remaining required interest payments due on each 1000 $ principal amount being converted through and including the maturity date (excluding accrued but unpaid interest to the applicable conversion date), known as an interest make-whole payment. The Company may pay any interest make-whole amount either in cash, in shares of common stock or a combination thereof, at its election.

Upon the occurrence of an event of default (as defined by the Third Indenture), the holders of the notes may accelerate the maturity of the notes and 100% of the principal and accrued and unpaid interest shall be due and payable immediately. If the Company fails to comply with certain reporting covenants under the Supplemental Indenture, the Company may elect to pay additional interest on the 2024 Notes as the sole remedy for such default.


Additionally, if the Company consolidates or merges with or into, sells, conveys, transfers or leases its consolidated properties and assets substantially as an entirety to a foreign entity it may be required to pay additional amounts for withholding taxes, duties, assessments or governmental charges as necessary to the 2024 Note holders.

The 2024 Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, since the 2024 Notes can be settled in cash, shares of common stock or a combination of cash and shares of common stock at the Company's option, the Company is required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The effective interest rate used in determining the liability component of the 2024 Notes was 17.82%. The fair value of the 2024 Notes, which also represents the proceeds received, was $98.4 million as of the date of the Convertible Note Exchange. This resulted in the recognition of $65.8 million as the liability component of the 2024 Notes and the recognition of the residual $54.2 million as the debt discount comprised of $21.6 million in fair value discount and $32.6 million for the equity component. The equity component is reflected as an increase to additional paid-in capital. The total issuance costs of $4.3 million were allocated between the debt and equity issuance costs in proportion to the allocation of the liability and equity components of the 2024 Notes. Total debt issuance costs of $2.9 million were recorded on the issuance date and are reflected in the Company's Condensed Consolidated Balance Sheet as a direct deduction from the carrying value of the associated debt liability. The debt discount and debt issuance costs will be amortized as non-cash interest expense through maturity, August 14, 2024 using the effective interest method.

The 2024 Notes are not convertible or redeemable as of September 30, 2019. The following is a summary of the liability component of the 2024 Notes as of 30 september 2019 (in thousands):

September 30,
2019

Principal amount of the 2024 Notes

$

120,000

Unamortized discount of the liability component

(53,407

)

Unamortized debt issuance costs

(2,836

)

Total 2024 Notes

$

63,757

The debt discount and debt issuance costs are being amortized as interest expense through August 14, 2024. The following is a summary of interest expense for the 2024 Notes for three and nine months ended 30 september 2019 (in thousands):

Three and Nine Months Ended September 30,

2019

Stated coupon interest

$

750

Amortization of debt discount and debt issuance costs

837

Total interest expense 2024 Notes

$

1,587

OPMERKING 10. INCOME TAXES

À partir de 30 september 2019, our net deferred tax assets are fully offset by a valuation allowance. The valuation allowance is determined in accordance with the provisions of ASC 740, Income taxes, which require an assessment of both negative and positive evidence when measuring the need for a valuation allowance.  Based on the weight of available evidence, the Company recorded a full valuation allowance against the Company’s net deferred assets beginning in the fourth quarter of 2016. The Company continued to provide a full valuation allowance against the Company’s net deferred assets in subsequent quarters. The Company reassesses the need for a valuation allowance on a quarterly basis.  If it is determined that a portion or all of the valuation allowance is not required, it will generally be a benefit to the income tax provision in the period such determination is made.

Dans le nine months ended 30 september 2019, the Company recorded a benefit from income taxes of approximately $0.4 million that represents an effective tax rate of 1.5%. The difference between the income tax benefit of $0.4 million and the tax at the statutory rate of 21.0% on current year operations is principally due to the change in valuation allowance, the release


in the FIN 48 liability due to the lapsing of the statute of limitations, and tax benefits being recorded as a result of income recorded in other components of income. For the nine months ended September 30, 2018, the difference between the income tax benefit and the federal statutory rate of 21.0%, was primarily attributable to the impact of the valuation allowance.

The Company files income tax returns in the United States federal jurisdiction and in various states, and the tax returns filed for the years 1997 through 2017 and the applicable statutes of limitation have not expired with respect to those returns. Because of net operating losses and unutilized R&D credits, substantially all of the Company’s tax years remain open to examination. The Company has exhausted all the federal research and development credit in 2018. However, the Company still has federal net operating loss carryforwards from 2001 due to section 382 limitation. Interest and penalties, if any, related to unrecognized tax benefits, would be recognized as income tax expense by the Company. At 30 september 2019 the Company had approximately $0.7 million of accrued interest and penalties associated with unrecognized tax benefits.

OPMERKING 11. LEASES

The Company has non-cancelable operating leases for its office and laboratory facilities, automobiles used by its sales force, and certain operating leases for office equipment.

The Company relocated its corporate headquarters from Newark, California to Lake Forest, Illinois in 2018 and subsequently entered into deux subleases which, together, account for the entirety of the Newark facility. Each sublease contains abated rent periods resulting in reduced operating lease cash flows through May 2019. Operating lease costs and sublease income related to the Newark facility are accounted for in Other (expense) income, net in the Condensed Consolidated Statements of Comprehensive Income. The Company has the right to renew the term of the Lake Forest lease for une period of five years, provided that written notice is made to the Landlord no later than twelve months prior to the expiration of the initial term of the Lease.

Lease expense during the period included the following (in thousands):

Three months ended

Nine months ended

Financial Statement Classification

30 september 2019

30 september 2019

Operating lease cost

Selling, general and administrative expenses

$

175

$

540

Operating lease cost

Other (expense) income, net

148

443

Total lease cost

$

323

$

983

Sublease Income

Other (expense) income, net

$

362

$

1,085

Supplemental cash flow and other information related to leases were as follows (in thousands):

Three months ended

Nine months ended

30 september 2019

30 september 2019

Cash paid for amounts included in measurement of liabilities:

Operating cash flows from operating leases

$

620

1,819

Supplemental balance sheet information related to leases consisted of the following (in thousands):

Financial Statement Classification

30 september 2019

Assets

Activa voor gebruiksrecht van operationele lease

Other long-term assets

$

2,999

Les passifs

Current operating lease liabilities

Other current liabilities

$

2,097

Noncurrent operating lease liabilities

Other long term liabilities

5,341

Total lease liabilities

$

7,438


Maturity of lease liabilities as of 30 september 2019 were as follows (in thousands):

Operating Leases

2019 (remainder)

$

627

2020

2,431

2021

2,323

2022

2,188

2023

632

Thereafter

Total lease payments

$

8,201

Less: Interest

763

Present value of lease liabilities

$

7,438

Lease term and discount rate consisted of the following:

30 september 2019

Weighted-average remaining lease term (years):

Operating leases

3.4

Weighted-average discount rate:

Operating leases

6.0

%

Future minimum lease payments under the Company's non-cancelable operating leases as of December 31, 2018 were as follows (in thousands):

Lease Payments

2019

$

2,624

2020

2,526

2021

2,322

2022

2,188

2023

632

Thereafter

Total

$

10,292

OPMERKING 12. COMMITMENTS AND CONTINGENCIES

Purchase and Other Commitments

À partir de 30 september 2019 and December 31, 2018, the Company had $2.9 million et $6.0 million, respectively, of non-cancelable purchase orders related to consulting services. The Company also committed to support the commercialization efforts of long-acting cosyntropin, see “Note 4. Revenue — Collaboration and License Agreements”, for further discussion. Refer to “Note 11. Leases”, for the Company’s non-cancelable office and laboratory leases, operating leases for vehicles used by our sales force and office equipment leases.


Legal Matters

Company v. NUCYNTA and NUCYNTA ER ANDA Filers

Actavis & Alkem:  In July 2013, Janssen Pharma filed patent infringement lawsuits in the U.S. District Court for the District of New Jersey (the District Court) against Actavis Elizabeth LLC, Actavis Inc. and Actavis LLC (collectively, Actavis), as well as Alkem Laboratories Limited and Ascend Laboratories, LLC (collectively, Alkem). The patent infringement claims against Actavis and Alkem relate to their respective ANDAs seeking approval to market generic versions of NUCYNTA® and NUCYNTA® ER before the expiration of U.S. Reissue Patent No. 39,593 (the ’593 Patent), U.S. Patent No. 7,994,364 (the ’364 Patent) and, as to Actavis only, U.S. Patent No. 8,309,060 (the ’60 Patent). In December 2013, Janssen Pharma filed an additional complaint in the District Court against Alkem asserting that newly issued U.S. Patent No. 8,536,130 (the ’130 Patent) was also infringed by Alkem’s ANDA seeking approval to market a generic version of NUCYNTA ER. In August 2014, Janssen Pharma amended the complaint against Alkem to add additional dosage strengths.

Sandoz & Roxane:  In October 2013, Janssen Pharma received a Paragraph IV Notice from Sandoz, Inc. (Sandoz) with respect to NUCYNTA related to the ’364 Patent, and a Paragraph IV Notice from Roxane Laboratories, Inc. (Roxane) with respect to NUCYNTA related to the ’364 and ’593 Patents. In response to those notices, Janssen Pharma filed an additional complaint in the District Court against Roxane and Sandoz asserting the ’364 Patent against Sandoz and the ’364 and ’593 Patents against Roxane. In April 2014, Janssen Pharma and Sandoz entered into a joint stipulation of dismissal of the case against Sandoz, based on Sandoz’s agreement not to market a generic version of NUCYNTA products prior to the expiration of the asserted patents. In June 2014, in response to a new Paragraph IV Notice from Roxane with respect to NUCYNTA ER, Janssen Pharma filed an additional complaint in the District Court asserting the ’364, ’593, and ’130 Patents against Roxane.

Watson:  In July 2014, in response to a Paragraph IV Notice from Watson Laboratories, Inc. (Watson) with respect to the NUCYNTA oral solution product and the ’364 and ’593 Patents, Janssen Pharma filed a lawsuit in the District Court asserting the ’364 and ’593 Patents against Watson.

In each of the foregoing actions, the ANDA filers counterclaimed for declaratory relief of non-infringement and patent invalidity. At the time that the actions were commenced, Janssen Pharma was the exclusive U.S. licensee of the patents referred to above. On April 2, 2015, the Company acquired the U.S. rights to NUCYNTA ER and NUCYNTA from Janssen Pharma. As part of the acquisition, the Company became the exclusive U.S. licensee of the patents referred to above. The Company was added as a plaintiff to the pending cases and is actively litigating them.

In September 2015, the Company filed an additional complaint in the District Court asserting the ’130 Patent against Actavis. The ’130 Patent issued in September 2013 and was timely listed in the Orange Book for NUCYNTA ER, but Actavis did not file a Paragraph IV Notice with respect to this patent.  In its new lawsuit, the Company claimed that Actavis would infringe or induce infringement of the ’130 Patent if its proposed generic products were approved. In response, Actavis counterclaimed for declaratory relief of non-infringement and patent invalidity, as well as an order requiring the Company to change the corrected use code listed in the Orange Book for the ’130 Patent.

In February 2016, Actavis, Roxane and Alkem each stipulated to infringement of the ’593 and ’364 patents.  On March 9, 2016, a two-week bench trial on the validity of the trois asserted patents and infringement of the ’130 patent commenced.  Closing arguments took place on April 27, 2016.  On September 30, 2016, the District Court issued its final decision.  The District Court found that the ’593 Patent, ’364 Patent, and ’130 Patent are all valid and enforceable, that Alkem will induce infringement of the ’130 Patent, but that Roxane and Actavis will not infringe the ’130 Patent.

On April 11, 2017, the District Court entered final judgment in favor of the Company on the validity and enforceability of all trois patents, on infringement of the ’593 and ’364 Patents by all defendants, and on infringement of the ’130 Patent against Alkem. The judgment includes an injunction enjoining all trois defendants from engaging in certain activities with regard to tapentadol (the active ingredient in NUCYNTA), and ordering the effective date of any approval of Actavis, and Roxane’s ANDAs, and Alkem’s ANDA for NUCYNTA IR to be no earlier than the expiry of the ’364 Patent (June 27, 2025), and the effective date of any approval of Alkem’s ANDA for NUCYNTA ER to be no earlier than the expiry of the ’130 Patent (September 22, 2028). The period of exclusivity with respect to all four defendants may in the future be extended with the award of pediatric exclusivity.

Notices of appeal were filed by defendants Alkem and Roxane concerning the validity of the ’364 and ’130 patents. The Company filed its own cross-appeal with regard to the District Court’s finding that Roxane and Actavis will not infringe the claims of the ’130 Patent. The appeals were consolidated at the United States Court of Appeals for the Federal Circuit (the Federal Circuit).  Briefing concluded in March 2018 and oral arguments occurred on September 4, 2018. In March 2019, the Federal Circuit affirmed the decision of the District Court in all respects. On April 29, 2019, Alkem filed a petition for panel rehearing and rehearing en banc with the Federal Circuit, which was denied on May 31, 2019. The period during which Aklem


could have petitioned the U.S. Supreme Court for writ of certiorari has passed. As a result, the District Court’s decision is final and non-appealable.

Company v. Purdue

The Company sued Purdue Pharma L.P (Purdue) for patent infringement in a lawsuit filed in January 2013 in the U.S. District Court for the District of New Jersey. The lawsuit arose from Purdue’s commercialization of reformulated OxyContin® (oxycodone hydrochloride controlled-release) in the U.S. and alleges infringement of U.S. Patent Nos. 6,340,475 (the ’475 Patent) and 6,635,280 (the ’280 Patent), which expired in September 2016.

On September 28, 2015, the Court stayed the Purdue lawsuit pending the decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Purdue’s appeal of the Final Written Decisions of the Patent Trial and Appeal Board (PTAB) described below. On June 30, 2016, the district court lifted the stay based on the CAFC’s opinion and judgment affirming the PTAB’s Final Written Decisions confirming the patentability of the patent claims of the ’475 and ’280 Patents Purdue had challenged. On June 10, 2016, the Company filed a motion for leave to file a second amended Complaint to plead willful infringement. On June 21, 2016, Purdue filed an opposition to the Company’s motion for leave to plead willful infringement. On January 31, 2017, the Court granted the Company’s motion for leave to plead willful infringement.

On February 1, 2017, the Company filed a Second Amended Complaint pleading willful infringement. On July 10, 2017, the case was reassigned to Judge Wolfson. On February 15, 2017, Purdue answered the Company’s Second Amended Complaint and pled counterclaims of non-infringement, invalidity, unenforceability and certain affirmative defenses. On September 26, 2017, the case was reassigned to Judge Martinotti. On December 22, 2017, the Court set the close of expert discovery for March 30, 2018. On January 5, 2018, the Court vacated the January 25, 2018 pretrial conference.

On July 9, 2018, the Court issued an order administratively terminating the case pending the outcome of settlement discussions between the parties. On August 28, 2018, the Company and each of Purdue, The P.F. Laboratories, Inc. a New Jersey corporation, and Purdue Pharmaceuticals L.P., a Delaware limited partnership (collectively, Purdue Companies), entered into a Settlement Agreement. Pursuant to the Settlement Agreement: (i) Purdue Companies paid the Company $30 million on August 28, 2018 and paid the Company an additional $32 million on January 30, 2019; (ii) each party covenanted not to the sue the other with regard to any alleged infringement of such party’s patents or patent rights as a result of the commercialization of the other party’s current product portfolio; (iii) each party covenanted not to challenge the other party’s patents or patent rights covering such other party’s current product portfolio; and (iv) each party agreed to a mutual release of claims relating to any claim or potential claim relating to the other party’s current product portfolio.

Glumetza Antitrust Litigation

Several antitrust class actions have been recently filed in the Northern District of California against the Company and other defendants relating to Glumetza®, a drug commercialized by Santarus, Inc. (Santarus). These actions include cases brought against the Company and other defendants by FWK Holdings, LLC, Meijer, Inc. and Meijer Distribution, Inc., Bi-Lo, LLC and Winn-Dixie Logistics, Inc., City of Providence, UFCW Local 1500 Welfare Fund and KPH Healthcare Services, Inc. In February 2012, the Company, Santarus and Lupin Limited (Lupin) entered into a Settlement and License Agreement with respect to a patent infringement litigation filed by the Company against Lupin regarding Lupin’s Abbreviated New Drug Application for generic 500 mg and 1000 mg tablets of metformin. The plaintiffs allege, among other things, that the Company and other defendants engaged in anticompetitive actions to restrain competition in the market for the drug Glumetza and its AB-related generic equivalents, including by allegedly entering into a so-called “reverse payment” that delayed the market entry of certain generic versions of Glumetza. Among other remedies, Plaintiffs are seeking past damages, punitive and statutory treble damages, and attorneys’ fees and costs. These lawsuits are in the earliest stages of proceedings, and the Company intends to defend itself vigorously in these matters.


Securities Class Action Lawsuit and Related Matters

On August 23, 2017, the Company, its current chief executive officer and president, its former chief executive officer and president, and its former chief financial officer were named as defendants in a purported federal securities law class action filed in the United States District Court for the Northern District of California (the District Court). The action (Huang v. Depomed et al., No. 4:17-cv-4830-JST, N.D. Cal.) alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 relating to certain prior disclosures of the Company about its business, compliance, and operational policies and practices concerning the sales and marketing of its opioid products and contends that the conduct supporting the alleged violations affected the value of Company common stock and is seeking damages and other relief. In an amended complaint filed on February 6, 2018, the lead plaintiff (referred to in its pleadings as the Depomed Investor Group), which seeks to represent a class consisting of all purchasers of Company common stock between July 29, 2015 and August 7, 2017, asserted the same claims arising out of the same and similar disclosures against the Company and the same individuals as were involved in the original complaint. The Company and the individuals filed a motion to dismiss the amended complaint on April 9, 2018. The lead plaintiff filed an opposition to the motion on June 8, 2018. The Company and the individuals filed a reply in support of their motion to dismiss on July 23, 2018. Oral arguments took place on December 13, 2018. On March 18, 2019, the District Court granted the Company’s motion to dismiss the plaintiffs’ amended complaint. The dismissal was without prejudice, and the plaintiffs filed a second amended complaint on May 2, 2019. The second amended complaint asserted the same claims arising out of the same and similar disclosures against the Company and the same individuals as were involved in the original complaint. The Company and the individuals filed a motion to dismiss the second amended complaint on June 17, 2019. The lead plaintiff filed an opposition to the motion on August 1, 2019. The Company and the individuals filed a reply in support of their motion to dismiss on August 30, 2019. The District Court has set oral argument for December 18, 2019. The Company believes that the action is without merit and intends to contest it vigorously.

Daarnaast, five shareholder derivative actions were filed on behalf of the Company against its officers and directors for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the federal securities laws. The claims arise out of the same factual allegations as the class action. The first derivative action was filed in the Superior Court of California, Alameda County on September 29, 2017 (Singh v. Higgins et al., RG17877280). The second and third actions were filed in the Northern District of California on November 10, 2017 (Solak v. Higgins et al., No. 3:17-cv-6546-JST) and November 15, 2017 (Ross v. Fogarty et al., No. 3:17-cv-6592- JST). The fourth action was filed in the District of Delaware on December 21, 2018 (Lutz v. Higgins et al, No. 18-2044-CFC). The fifth derivative action was filed in the Superior Court of California, Alameda County on January 28, 2019 (Youse v. Higgins et al, No. HG19004409). On December 7, 2017, the plaintiffs in Solak v. Higgins, et al. voluntarily dismissed the first federal derivative action. De Ross, Singhet Lutz actions were stayed on January 18, 2018, January 23, 2018, and January 11, 2019, respectively, pending the resolution of the motion to dismiss in the securities class action. On May 28, 2019, during a brief lift of the stay in the Singh et Youse actions while the parties’ motion to consolidate was pending, after having been ordered to respond to the Singh et Youse complaints, the Company did so by filing demurrers. On July 12, 2019, the Singh et Youse actions were consolidated, and the consolidated matter was stayed pending the resolution of the motion to dismiss in the federal class action. The plaintiffs have indicated that they intend to file an amended consolidated complaint. The Company believes that these actions are without merit and intends to contest them vigorously.

Opioid-Related Request and Subpoenas

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state, and local regulatory and governmental agencies. In March 2017, the Company received a letter from Senator Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information from the Company regarding its historical commercialization of opioid products. The Company voluntarily furnished information responsive to Sen. McCaskill’s request. The Company has also received subpoenas or civil investigative demands focused on its historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various State Attorneys General seeking documents and information regarding the Company’s historical sales and marketing of opioid products. In addition, the State of California Department of Insurance (CDI) has issued a subpoena to the Company seeking information relating to its historical sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise®, a non-opioid product in the Company’s portfolio. The Company has received subpoenas from the U.S. Department of Justice (DOJ) seeking documents and information regarding its historical sales and marketing of opioid products. The Company also from time to time receives and complies with subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. The Company is cooperating with the foregoing governmental investigations and inquiries.


Multidistrict Opioid Litigation

A number of pharmaceutical manufacturers, distributors and other industry participants have been named in numerous lawsuits around the country brought by various groups of plaintiffs, including city and county governments, hospitals and others. In general, the lawsuits assert claims arising from defendants’ manufacturing, distributing, marketing and promoting of FDA-approved opioid drugs. The specific legal theories asserted vary from case to case, but most of the lawsuits include federal and state statutory claims as well as claims arising under state common law. Plaintiffs seek various forms of damages, injunctive and other relief and attorneys’ fees and costs.

For such cases filed in or removed to federal court, the Judicial Panel on Multi-District Litigation issued an order in December 2017, establishing a Multi-District Litigation court (MDL Court) in the Northern District of Ohio (In re National Prescription Opiate Litigation, Case No. 1:17-MD-2804). Since that time, more than 2000 such cases that were originally filed in U.S. District Courts, or removed to federal court from state court, have been transferred to the MDL Court. The Company is currently involved in a subset of the lawsuits that have been transferred to the MDL Court. The Company is also involved in other federal lawsuits that have not yet been transferred to the MDL Court pending a determination of whether those lawsuits should proceed in state court. Plaintiffs may file additional lawsuits in which the Company may be named. Plaintiffs in the pending federal cases involving the Company include individuals, county and municipal governmental entities, employee benefit plans, health clinics and health insurance providers who assert federal and state statutory claims and state common law claims, such as conspiracy, nuisance, fraud, negligence, gross negligence, deceptive trade practices, and products liability claims (defective design/failure to warn). In these cases, plaintiffs seek a variety of forms of relief, including actual damages to compensate for alleged personal injuries and for alleged past and future costs such as to provide care and services to persons with opioid-related addiction or related conditions, injunctive relief, including to prohibit alleged deceptive marketing practices and abate an alleged nuisance, establishment of a compensation fund, disgorgement of profits, punitive and statutory treble damages, and attorneys’ fees and costs. These lawsuits are in the earliest stages of proceedings, and the Company intends to defend itself vigorously in these matters.

State Opioid Litigation

Related to the cases in the MDL Court noted above, there have been hundreds of similar lawsuits filed in state courts around the country, in which various groups of plaintiffs assert opioid-drug related claims against similar groups of defendants. The Company is currently named in a subset of those cases, including cases in Arizona, Florida, Kentucky, Missouri, Pennsylvania, South Carolina, Texas, Utah, and West Virginia. Plaintiffs may file additional lawsuits in which the Company may be named. In the pending cases, plaintiffs are asserting state common law and statutory claims against the defendants similar in nature to the claims asserted in the MDL cases. Plaintiffs are seeking past and future damages, disgorgement of profits, injunctive relief, punitive and statutory treble damages, and attorneys’ fees and costs. These lawsuits are likewise in their earliest stages, and the Company intends to defend itself vigorously in these matters.

Insurance Litigation

On January 15, 2019, the Company was named as a defendant in a declaratory judgment action filed by Navigators Specialty Insurance Company (Navigators) in the United States District Court for the Northern District of California (Case No. 3:19-cv-255). Navigators is the Company’s primary product liability insurer. Navigators is seeking declaratory judgment that opioid litigation claims noticed by the Company (as further described above under “Multidistrict Opioid Litigation” and “State Opioid Litigation”) are not covered by the Company’s life sciences liability policies with Navigators. The Company filed a counterclaim on February 28, 2019. Navigators filed an answer on April 11, 2019. This litigation is ongoing.

Algemeen

The Company cannot reasonably predict the outcome of the legal proceedings described above, nor can the Company estimate the amount of loss, range of loss or other adverse consequence, if any, that may result from these proceedings or the amount of any gain in the event the Company prevails in litigation involving a claim for damages. As such the Company is not currently able to estimate the impact of the above litigation on its financial position or results of operations.

The Company may from time to time become party to actions, claims, suits, investigations or proceedings arising from the ordinary course of its business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims and other matters. The Company may also become party to further litigation in federal and state courts relating to opioid drugs. Although actions, claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, other than the matters set forth above, the Company is not currently involved in any matters that the Company believes may have a material adverse effect on its business, results of operations or financial condition. However, regardless of the outcome, litigation can have an adverse impact on the Company because of associated cost and diversion of management time.


OPMERKING 13. INTANGIBLE ASSETS

The gross carrying amounts and net book values of intangible assets were as follows (in thousands):

30 september 2019

December 31, 2018

restant

Gross

Gross

Useful Life

Carrying

Accumulated

Net Book

Carrying

Accumulated

Net Book

Product rights

(In years)

Montant

Amortization

Value

Montant

Amortization

Value

NUCYNTA

6.2

$

1,019,978

$

(431,617

)

$

588,361

$

1,019,978

$

(360,891

)

$

659,087

CAMBIA

4.2

51,360

(29,743

)

21,617

51,360

(25,891

)

25,469

Zipsor

2,5

27,250

(21,460

)

5,790

27,250

(19,707

)

7,543

Total

$

1,098,588

$

(482,820

)

$

615,768

$

1,098,588

$

(406,489

)

$

692,099

Based on finite-lived intangible assets recorded as of 30 september 2019, and assuming the underlying assets will not be impaired and that the Company will not change the expected lives of the assets, future amortization expenses were estimated as follows (in thousands):

Estimated

Amortization

Year Ending December 31,

Expense

2019 (remainder)

$

25,444

2020

101,774

2021

101,774

2022

99,969

Thereafter

286,807

Total

$

615,768

OPMERKING 14. RESTRUCTURING CHARGES

In June 2017, the Company announced a limited reduction-in-force in order to streamline operations and achieve operating efficiencies. The activities related to that reduction-in-force were completed during the third quarter of 2017.  In December 2017, the Company initiated a company-wide restructuring plan following the entry into the Commercialization Agreement with Collegium. This plan focused on a reduction of the Company’s pain sales force during the first quarter of 2018, a reduction of the staff at its headquarters office during the second quarter of 2018 and a move from its headquarters facility in Newark, California to Lake Forest, Illinois in the third quarter of 2018. The restructuring plan was substantially complete as of December 31, 2018 and therefore no charges were incurred in the three and nine months ended 30 september 2019.

The following table summarizes the total expenses recorded related to the 2017 restructuring and one-time termination cost activities by type of activity and the locations recognized within the consolidated statements of operations as restructuring costs (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Employee compensation costs

$

$

400

$

$

14,993

Fixed Asset disposals and accelerated depreciation of leasehold improvements

3,511

3,511

Other exit costs

238

Total restructuring costs

$

$

3,911

$

$

18,742


Selected information relating to accrued restructuring, severance costs and one-time termination costs is as follows (in thousands):

Employee compensation costs

Balance at December 31, 2018

$

1,578

Cash paid

(758

)

Balance at March 31, 2019

$

820

Cash paid

(342

)

Balance at June 30, 2019

$

478

Cash paid

(43

)

Balance at September 30, 2019

$

435

À partir de 30 september 2019, the full $0.4 million accrued restructuring liability balance was classified as a current liability in the Condensed Consolidated Balance Sheet.

OPMERKING 15. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

30 septembre
2019

31 décembre
2018

Furniture and office equipment

$

2,600

$

2,237

Machinery and equipment

2,731

11,391

Laboratory equipment

351

351

Leasehold improvements

9,858

9,858

15,540

23,837

Less: Accumulated depreciation and amortization

(11,667

)

(10,773

)

Property and equipment, net

$

3,873

$

13,064

During the three and nine months ended 30 september 2019, the Company recorded depreciation expense of $0.3 million and $0.9 million, respectively.

In September 2019, the Company committed to a plan to dispose by abandonment certain owned machinery, with a carrying value of $9.6 million, residing at a manufacturing supplier as it would no longer be used in future production. The Company recognized a loss on disposition of equipment of 10,1 millions de dollars, inclusive of $0.5 million for disposal costs, in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Comprehensive Income during the three months ended September 30, 2019.

OPMERKING 16. SUBSEQUENT EVENTS

On November 6, 2019, the Company announced an acceleration of cost saving initiatives that are expected to deliver annual savings in 2020 and thereafter. These cost saving initiatives resulted from a review of the Company’s organizational structures, budgets, capital projects and capabilities. Pursuant to these cost saving initiatives, the Company expects to incur a charge of approximately $4.0 million in one-time severance and other benefits in the fourth quarter of 2019. The estimate of costs that the Company expects to incur and the timing thereof are subject to a number of assumptions and actual results may differ.


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION

Statements made in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements include, but are not necessarily limited to, those relating to:

the commercial success and market acceptance of our products and product candidate, long-acting cosyntropin;

the success of Collegium in commercializing NUCYNTA® ER and NUCYNTA®;

any additional patent infringement or other litigation, investigation or proceeding that may be instituted related to us or any of our products, product candidates or products we may acquire;

our ability to generate sufficient cash flow from our business to make payments on our indebtedness, our ability to restructure or refinance our indebtedness and our compliance with the terms and conditions of the agreements governing our indebtedness;

our common stock remaining in compliance with Nasdaq’s minimum closing bid requirement of at least $1.00 per share, and the resulting rights of holders of our Convertible Notes and Senior Notes to require us to repurchase their notes if our common stock ceases to be listed on the Nasdaq Global Select Market (or certain other U.S. stock exchanges specified in the agreements governing our indebtedness);

our and our collaborative partners’ compliance or non-compliance with legal and regulatory requirements related to the development or promotion of pharmaceutical products in the U.S.;

our plans to acquire, in-license or co-promote other products;

the timing and the results of our and our collaborative partners’ research and development efforts including clinical studies relating to our and our collaborative partners’ product candidates, including long-acting cosyntropin;

approval of regulatory filings, including evaluation of the Complete Response Letter (CRL) for the novel injectable formulation of long-acting cosyntropin and our and our development partner’s determination if the FDA’s comments can be adequately addressed;

our ability to raise additional capital, if necessary;

our ability to successfully develop and execute our sales and marketing strategies;

variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting treatment with respect thereto;

our collaborative partners’ compliance or non-compliance with obligations under our collaboration agreements;

the outcome of both our opioid-related investigations, our opioid-related litigation brought by state and local governmental entities and private parties, and our insurance litigation, and the costs and expenses associated therewith;

the regulatory strategy for long-acting cosyntropin and both our and our collaborative partner’s ability to successfully develop and execute such strategy; et

our ability to attract and retain key executive leadership following our restructuring and office relocation.

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the “RISK FACTORS” section and elsewhere in this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of this Quarterly Report


on Form 10-Q, even if new information becomes available in the future. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in any such forward-looking statement.

COMPANY OVERVIEW

We are a specialty pharmaceutical company focused on neurology, orphan and specialty medicines. Our current specialty pharmaceutical business includes the following three products which we market in the U.S.:

Gralise® (gabapentin), a once daily product for the management of postherpetic neuralgia (PHN), that we launched in October 2011.

CAMBIA® (diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug for the acute treatment of migraine attacks, that we acquired in December 2013.

Zipsor® (diclofenac potassium liquid filled capsules), a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain, that we acquired in June 2012.

We maintain a Commercialization Agreement with Collegium pursuant to which we granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the United States. Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing. We receive a royalty on all NUCYNTA revenues based on certain net sales thresholds.

We also have the exclusive rights to market long-acting cosyntropin (synthetic adrenocorticotropic hormone, or ACTH) in the U.S. and Canada. Long-acting cosyntropin is an alcohol-free formulation of a synthetic analogue of ACTH. In February 2019, notification of acceptance for filing was received from the U.S. Food and Drug Administration (FDA) for our development partner's 505(b)(2) New Drug Application (NDA) for the novel injectable formulation of long-acting cosyntropin. We, together with our development partner, seek approval for the use of this product as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. On October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin. The primary focus of the CRL relates to the FDA's determination that certain pharmacodynamic parameters were not adequately achieved. We and our development partner are reviewing the CRL and will determine if the FDA’s comments can be adequately addressed.

La stratégie

Our business strategy is based on three pillars: Maintain, Grow and Build. We intend to “Maintain” our NUCYNTA franchise of pain products through our Commercialization Agreement with Collegium. We intend to “Grow” our neurology, orphan and specialty medicine business through organic and inorganic growth. We intend to “Build” a portfolio of high-value products positioned to address the needs of patients, physicians and payers.

OUR BUSINESS OPERATIONS

À partir de 30 september 2019, our revenues were generated primarily from the commercialized products set forth below.

Gralise (Gabapentin)

Gralise is our proprietary, once‑daily formulation of gabapentin indicated for management of PHN, a persistent pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. We made Gralise commercially available in October 2011, following its FDA approval in January 2011. Gralise product sales were $14.9 million et $14.6 million for the three months ended 30 september 2019 et 2018, respectively. Gralise product sales were $46.0 million et $43.3 million for the nine months ended 30 september 2019 et 2018, respectively.

CAMBIA (Diclofenac Potassium for Oral Solution)

CAMBIA is a non‑steroidal anti‑inflammatory drug (NSAID) indicated for the acute treatment of migraine attacks with or without aura in adults 18 years of age or older. We acquired CAMBIA in December 2013 from Nautilus Neurosciences, Inc. (Nautilus). We began shipping and recognizing product sales on CAMBIA in December 2013. CAMBIA product sales were $8.1 million et $10.4 million for the three months ended 30 september 2019 et 2018, respectively.


CAMBIA product sales were $23.7 million et $24.9 million for the nine months ended 30 september 2019 et 2018, respectively.

Zipsor (Diclofenac Potassium) Liquid Filled Capsules

Zipsor is an NSAID indicated for relief of mild to moderate acute pain in adults. Zipsor uses proprietary ProSorb delivery technology to deliver a finely dispersed, rapidly absorbed formulation of diclofenac. We acquired Zipsor in June 2012 from Xanodyne Pharmaceuticals, Inc. (Xanodyne). We began shipping and recognizing product sales on Zipsor in June 2012. Zipsor product sales were $3.3 million et $4.4 million for the three months ended 30 september 2019 et 2018, respectively. Zipsor product sales were $9.0 million et $13.2 million for the nine months ended 30 september 2019 et 2018, respectively.

NUCYNTA ER (Tapentadol Extended Release Tablets) and NUCYNTA IR (NUCYNTA) (Tapentadol)

NUCYNTA ER is an extended release version of tapentadol that is indicated for the management of pain severe enough to require daily, around‑the‑clock, long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy (DPN) in adults, and for which alternate treatment options are inadequate. NUCYNTA is an immediate release version of tapentadol that is indicated for the management of moderate to severe acute pain in adults. We acquired the U.S. rights to NUCYNTA ER and NUCYNTA from Janssen Pharmaceuticals, Inc. (Janssen Pharma) and began shipping and recognizing product sales on NUCYNTA ER and NUCYNTA in April 2015. We began commercial promotion of NUCYNTA ER and NUCYNTA in June 2015.

In December 2017, we entered into a Commercialization Agreement with Collegium, which we amended in November 2018. Pursuant to the Commercialization Agreement, we granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the United States. Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing. We receive a royalty on all NUCYNTA revenues based on certain net sales thresholds, with a minimum royalty of $132.0 million for the year ended December 31, 2018. Beginning in 2019, we will receive royalties based on certain annual NUCYNTA net sales thresholds for future years. Both we and Collegium may terminate the Commercialization Agreement under certain circumstances; however, Collegium may not terminate the agreement prior to the end of 2021. Additionally, we retained certain rights to co-promote NUCYNTA products, subject to providing advanced notice to Collegium. See “Item 1. Financial Statements and Supplementary Data – Note 4. Revenue” for additional information regarding the terms of the Commercialization Agreement.

Product Candidate

Long-Acting Cosyntropin. In November 2017, we entered into definitive agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which we acquired Slán’s rights to market long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. In February 2019, notification of acceptance for filing was received from the FDA for our development partner’s 505(b)(2) NDA for the novel injectable formulation of long-acting cosyntropin. We, together with our development partner, seek approval for the use of this product as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. On October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin. The primary focus of the CRL relates to the FDA's determination that certain pharmacodynamic parameters were not adequately achieved. We and our development partner are reviewing the CRL and will determine if the FDA’s comments can be adequately addressed.

Collaboration and License Agreement with Ironwood Pharmaceuticals, Inc. (Ironwood)

In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW 3718, an Ironwood product candidate under evaluation for refractory GERD. During the second quarter of 2018, we received a $5.0 million milestone payment related to the dosing of the first patient in a Phase 3 trial. We will receive additional contingent milestone payments upon the occurrence of certain development milestones and royalties on net sales of the product, if approved. There was no revenue recognized related to the Ironwood Agreement during the nine months ended 30 september 2019. $5.0 million related to the Phase 3 trial milestone payment was recognized as revenue during the nine months ended September 30, 2018.


PDL BioPharma, Inc. (PDL) Royalty Purchase and Sale Agreement

In October 2013, pursuant to the terms and conditions of a Royalty Purchase and Sale Agreement with PDL (Royalty Purchase Agreement), we sold to PDL our right to receive royalty, milestone and other specified payments arising on and after October 2013 under each of the following license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area: (i) the License and Services Agreement, effective as of March 4, 2011, with Boehringer Ingelheim International GMBH (BI) relating to potential future development milestones and sales of BI’s investigational fixed-dose combinations of drugs and extended-release metformin worldwide; (ii) the License Agreement, effective as of August 5, 2010, with Janssen Pharmaceutica N.V. (Janssen) relating to potential future development milestones and sales of Janssen’s investigational fixed-dose combination of Invokana (canagliflozin) and extended-release metformin worldwide; (iii) the Non-Exclusive License, Covenant Not to Sue and Right of Reference Agreement, effective as of July 21, 2009, with Merck & Co., Inc. relating to sales of Janumet XR (sitagliptin and metformin HCL extended-release) worldwide; (iv) the Commercialization Agreement, effective as of August 22, 2011, with Santarus, Inc. relating to sales of Glumetza (metformin HCL extended-release tablets) in the United States; (v) the Amended License Agreement, effective as of January 9, 2007, with LG Life Sciences Ltd. relating to sales of extended-release metformin in Korea; and (vi) the Amended and Restated License Agreement (Extended Release Metformin Formulations — Canada), dated as of December 13, 2005, with Biovail Laboratories International SRL relating to sales of extended-release metformin in Canada. Under the Royalty Purchase Agreement, PDL was entitled to receive all payments due under such license agreements until PDL received $481.0 million, after which all net payments received were to be shared evenly between us and PDL. In August 2018, we amended the Royalty Purchase Agreement and sold our remaining interest in such payments to PDL for $20.0 million.

Segment Information

We maintain one operating segment and have operations solely in the United States. To date, substantially all of our revenues from product sales are related to sales in the United States.

RESTRUCTURING

In June 2017, we announced a limited reduction-in-force in order to streamline operations and achieve operating efficiencies. In December 2017, we continued our restructuring plans by initiating a company-wide restructuring designed to help position us for sustainable, long-term growth that we believe will align our staff and office locations to fit our commercial strategy. Pursuant to our restructuring plans, in February 2018 we eliminated our pain sales force, consisting of approximately 230 sales representatives and 25 manager positions. We reduced the staff at our headquarters office during the second quarter of 2018. In the third quarter of 2018, we relocated our corporate headquarters from Newark, California to Lake Forest, Illinois and reduced our headquarters office space by 50%. For further information about our restructuring costs, see “Item 1. Financial Statements and Supplementary Data – Note 14. Restructuring Charges.”

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that require significant judgment and/or estimates by management at the time that the financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition, accrued liabilities and use of estimates to be critical policies. These estimates form the basis for making judgments about the carrying value of assets and liabilities. There have been no changes to our critical accounting policies since we filed our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 11, 2019 (the 2018 Form 10-K). The description of our critical accounting policies is incorporated herein by reference to our 2018 Form 10-K.


RESULTS OF OPERATIONS

Three and Nine Months Ended 30 september 2019 et 2018.

Chiffre d'affaires

Total revenues by products are summarized in the following table (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Product sales, net

Gralise

$

14,931

$

14,630

$

46,008

$

43,272

CAMBIA

8,135

10,365

23,701

24,870

Zipsor

3,273

4,441

9,028

13,175

Total neurology product sales, net

26,339

29,436

78,737

81,317

NUCYNTA products (1)

1,254

11

1,153

18,782

Lazanda (2)

(91

)

(12

)

(1

)

528

Total product sales, net

27,502

29,435

79,889

100,627

Commercialization agreement:

Commercialization rights and facilitation services, net

27,304

27,781

89,163

87,055

Revenue from transfer of inventory

55,705

Royalties and milestone revenue

341

20,277

1,226

25,784

Total revenues

$

55,147

$

77,493

$

170,278

$

269,171

(1)

NUCYNTA product sales for the nine months ended September 30, 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. During the first quarter of 2018, in connection with the Collegium transaction, we recognized revenue of $12.5 million related to the release of NUCYNTA sales reserves which were primarily recorded in the fourth quarter of 2017, as financial responsibility for those reserves transferred to Collegium upon closing of the Commercialization Agreement. During the three and nine months ended 30 september 2019, we recognized sales reserve estimate adjustments related to sales recognized for NUCYNTA in prior periods.

(2)

We divested Lazanda in November 2017. Product sales for the three and nine months ended 30 september 2019 et 2018 relate to sales reserve estimate adjustments.

Product Sales

Gralise net product sales for the three and nine months ended 30 september 2019 increased by $0.3 million et $2.7 million, respectively, as compared to the same periods in 2018, primarily due to favorable payor mix.

CAMBIA net product sales for the three months ended 30 september 2019 decreased by $2.2 million as compared to the same periods in 2018, primarily due to lower volume and unfavorable payor mix. Net product sales for the nine months ended 30 september 2019 decreased by $1.2 million as compared to the same periods in 2018, primarily due to lower volume.

Zipsor net product sales for the three and nine months ended 30 september 2019 decreased by $1.2 million et $4.1 million, respectively, as compared to the same periods in 2018, primarily due to the impact of short-dated product sales returns and unfavorable payor mix.

We ceased recording revenues and related costs associated with Lazanda after we divested the product to Slán in November 2017. Product sales for the three and nine months ended 30 september 2019 et 2018 reflect adjustments made for previously recorded sales reserve estimates.


Commercialization Agreement Revenue

We recognized revenue as a result of the Commercialization Agreement for the three and nine months ended 30 september 2019 et 2018 as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Royalty revenue

$

30,201

$

27,781

$

94,164

$

87,055

Contract liability amortization (1)

703

2,088

Contract asset amortization, net

(906

)

(2,690

)

Third-party royalty, net

(2,898

)

(4,977

)

Expense reimbursement

204

579

Inventory transfer

55,705

Total commercialization revenue

$

27,304

$

27,781

$

89,163

$

142,760

(1) The contract liability amortization represents the recognition of revenue related to the warrants received in November 2018 which are being recognized over the term of the contract.

For the three and nine months ended 30 september 2019, we recognized variable royalty revenue from the Commercialization Agreement of $30.2 million et $94.2 million, respectively, which became effective for sales beginning January 1, 2019 as recognition of such royalties are constrained by the sales-based royalty exception related to intellectual property. Other components of revenue recognized by us from the Commercialization Agreement include the amortization of contract assets, net arising from the transfer of inventory to Collegium net of warrants and prepayments received, and variable consideration revenue for reimbursement of certain shared costs. In addition, during the three and nine months ended September 30, 2019, we recognized $2.9 million et $5.0 million of net expense related to the third-party royalties which have been paid by Collegium on behalf of Assertio. It is our expectation that, in accordance with the amended Commercialization Agreement, Collegium will pay the full royalty owed to the third-party in 2019, 2020 and 2021 and that such amounts, over the course of the calendar year, will have no net impact to us.

For the three and nine months ended September 30, 2018, we recognized royalty revenue from the Commercialization Agreement of $27.8 million et $87.1 million, respectively. We also recognized $55.7 million related to the transfer of inventory upon closing in January 2018.

Royalties

Royalties are primarily comprised of royalties from Aralez Pharmaceuticals, Inc. on net sales of CAMBIA in Canada. Tijdens de three and nine months ended 30 september 2019, we recognized $0.3 million et $1.2 million, respectively, of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee to support the continued collaboration with our partner in Canada following their acquisition. Tijdens de three and nine months ended September 30, 2018, we recognized $0.3 million et $0.8 million, respectively, of revenue related to CAMBIA in Canada.

In October 2013, we sold our interests in royalty and milestone payments under our license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area to PDL BioPharma, Inc. (PDL) for $240.5 million. On August 2, 2018 we sold our remaining interest in such payments to PDL for $20.0 million. De $20.0 million of revenue was recognized as royalty revenue in the three months ended September 30, 2018.

Milestone Revenue

In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW‑3718, an Ironwood product candidate under evaluation for refractory GERD. During the second quarter of 2018 we recognized and collected a $5.0 million contingent milestone payment related to the dosing of the first patient in a Phase 3 trial for IW 3718.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, royalties payable to third‑parties, inventory write‑downs, a product quality testing, internal employee costs related to the


manufacturing process, distribution costs and shipping costs related to our product sales. Cost of sales excludes the amortization of intangible assets described separately below under “Amortization of Intangible Assets.”

Cost of sales decreased door $0.8 million de $3.0 million à $2.2 million in the three months ended 30 september 2019 as compared to the same period in 2018 primarily due to the inclusion of third party royalties for NUCYNTA during the quarter in 2018. Cost of sales decreased door $10.9 million de $17.8 million à $6.9 million in the nine months ended 30 september 2019 as compared to the same periods in 2018 driven by the inclusion of third party royalties for NUCYNTA in 2018 and other NUCYNTA related costs incurred in the first quarter of 2018. Pursuant to the terms of our Commercialization Agreement with Collegium, effective January 9, 2018, we no longer record product sales of NUCYNTA and NUCYNTA ER and, as a result, no longer incur or record the cost of sales of such products. The cost of sales in 2018 also includes $6.2 million related to the cost of inventory transferred to Collegium on closing of the Commercialization Agreement. Following the divestiture of Lazanda in November 2017, we no longer record Lazanda product sales or related cost of sales.

The cost of sales as a percentage of sales for Gralise, CAMBIA and Zipsor, combined for the nine months ended 30 september 2019 and 2018 was approximately 8.9% and 8.4% respectively. The increase in cost of sales is primarily related to higher distribution costs.

Research and Development Expenses

Our research and development expenses currently include salaries, clinical trial costs, consultant fees, supplies, manufacturing costs for research and development programs and allocations of corporate costs. It is difficult to predict the scope and magnitude of future research and development expenses for our product candidates in research and development, as it is difficult to determine the nature, timing and extent of clinical trials and studies and the FDA’s requirements for a particular drug. As potential products proceed through the development process, each step is typically more extensive, and therefore more expensive, than the previous step. Therefore, success in development generally results in increasing expenditures until actual product approval.

Research and development expenses was decreased door $0.6 million de $2.1 million à 1,5 million de dollars in the three months ended 30 september 2019 as compared to the same period in 2018 and decreased door $1.3 million de $5.8 million à $4.5 million in the nine months ended 30 september 2019 as compared to the same periods in 2018, primarily due to higher clinical trial and regulatory costs in 2018 offset by increased salary costs in 2019.

Selling, General and Administrative Expenses

Selling, general and administrative expenses primarily consist of personnel, contract personnel, marketing and promotion expenses associated with our commercial products, personnel expenses to support our administrative and operating activities, facility costs, and professional expenses, such as legal fees.

Selling, general, and administrative expenses increased door $2.7 million de $33.4 million à $36.1 million in the three months ended 30 september 2019 as compared to the same period in 2018 primarily due to the $10.1 million loss on disposal of equipment in the third quarter of 2019 offset by higher facilities and personnel costs in 2018 prior to the completion of our restructuring plan. Selling, general, and administrative expenses decreased door $7.9 million de $93.8 million à $85.9 million in the nine months ended 30 september 2019 as compared to the same periods in 2018, primarily due to the reduction in our sales force following the restructuring plan announced in December 2017 and the elimination of all commercialization efforts relating to NUCYNTA following the Commercialization Agreement with Collegium. In December 2017, in connection with the signing of the Commercialization Agreement with Collegium we announced the termination of our pain sales force which occurred during the first quarter of 2018, consisting of approximately 255 sales representatives and sales manager positions, and our decision to significantly reduce our office staff and reduce our headquarters office space by approximately 50%. These higher costs were offset by the $10.1 million loss on disposal of equipment recognized in the third quarter of 2019.

In connection with the Multidistrict Opioid Litigation, the State Opioid Litigation and the Opioid-Related Requests and Subpoenas described in “Note 12. Commitments and Contingencies – Legal Matters” of the Notes to unaudited condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we expect to incur additional costs and expenses related to our ongoing opioid-related litigation and investigations, which may be significant and which may increase in future periods.


Amortization of Intangible Assets

Amortization of intangible assets for the three and nine months ended 30 september 2019 et 2018 was comprised of (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Amortization of intangible assets – NUCYNTA

23,576

23,576

70,726

70,726

Amortization of intangible assets – CAMBIA

1,284

1,284

3,852

3,852

Amortization of intangible assets – Zipsor

584

583

1,753

1,753

Total

$

25,444

$

25,443

$

76,331

$

76,331

The amortization expense during the three and nine months ended 30 september 2019 was in-line with amortization expense as compared to the same period in 2018.

Restructuring Charges

We did not incur any restructuring charges during the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, restructuring expenses and one-time termination costs were $3.9 millionet $18.7 million, respectively.

During 2018 we continued to execute the restructuring plan announced in December 2017. We completed the previously announced termination of our pain sales force during the first quarter of 2018, consisting of approximately 255 sales representatives and sales manager positions. We relocated our corporate headquarters from Newark, California to Lake Forest, Illinois, which reduced our headquarters office space requirement by approximately 50%. During the first quarter of 2018, we entered into an Office Lease pursuant to which we lease approximately 31,000 rentable square feet of space in Lake Forest, Illinois. Our initial tenant improvements in the space were completed in August 2018 and we began occupying the space at that time.

Other (Expense) Income

Other income and expense for the three and nine months ended 30 september 2019 et 2018 was comprised of (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Litigation settlement

$

$

62,000

$

$

62,000

Interest expense

(13,872

)

(17,190

)

(45,268

)

(52,268

)

Change in fair value of Collegium warrants

(1,423

)

(4,900

)

Gain on debt extinguishment

26,385

26,385

Interest and other income

659

677

2,287

973

Total other (income) expense

$

11,749

$

45,487

$

(21,496

)

$

10,705

For the three and nine months ended 30 september 2019, Total other expense (income) includes $26.4 million gain on debt extinguishment in connection with the Convertible Note Exchange, offset by fair value adjustments of the Collegium warrants obtained in November 2018.

For the three and nine months ended September 30, 2018, Total other expense (income) includes $62.0 million in income from the Purdue settlement.


The interest expense was comprised of (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Interest payable on Senior Notes

$

5,736

$

9,517

$

20,544

$

29,383

Interest payable on Convertible Notes

2,240

2,156

6,552

6,468

Amortization of debt discounts and issuance costs relating to Senior Notes and Convertible Notes

5,870

5,490

18,090

16,298

Changes in fair value of contingent consideration

28

27

85

106

Other

(2

)

(3

)

13

Total des charges d'intérêts

$

13,872

$

17,190

$

45,268

$

52,268

For the three and nine months ended September 30, 2019, total interest expense decreased door $3.3 million et $7.0 million primarily due to lower interest expense for our Senior Notes due to principal payments made in 2018 and 2019. The increase in amortization of debt discounts and issuance costs was primarily due to the capitalization and amortization of additional debt discount and issuance costs associated with the amendments of our Senior Notes and the Convertible Note Exchange.

Income Tax Provision

Dans le three and nine months ended 30 september 2019, we recorded a benefit from income taxes of approximately $1.7 million et $0.4 million, respectively. The difference for the three and nine months ended 30 september 2019 between the effective tax rate of (106.1)% et 1.5%, respectively, and the tax at the statutory rate of 21.0% on current year operations is principally due to the change in valuation allowance, the release in the FIN 48 liability due to the lapsing of the statute of limitations, and tax benefits being recorded as a result of income recorded in other components of income.

Dans le three and nine months ended September 30, 2018, we recorded an expense from income taxes of approximately 6,8 millions de dollars et $6.4 million, respectively, that represents an effective tax rate of 12.4%et 9.5%. For the three and nine months ended September 30, 2018, the difference between the recorded provision for income taxes and the tax based on the federal statutory rate of 21.0%, was primarily attributable to the impact of the valuation allowance.


LIQUIDITY AND CAPITAL RESOURCES

The decrease in cash and cash equivalents by $56.7 million from $110.9 million to $54.2 million during the nine months ended 30 september 2019 is primarily attributable to $100.0 million in principal payments on our Senior Notes, $30.0 million of cash used in the exchange of our convertible notes, partially offset by the receipt of $32.0 million from the Purdue settlement and cash generated from operations.

We were in compliance with our covenants, including the Senior Secured Debt Leverage Ratio and Net Sales covenants, with respect to the Senior Notes as of 30 september 2019. While we are currently in compliance with each of the financial and other covenants contained in the Note Purchase Agreement, and anticipate continued compliance with such covenants, we may seek to refinance or restructure our debt, sell assets or obtain additional capital, each of which may be on terms that may be onerous, dilutive or disruptive to our business. Any prepayment of the Senior Notes would be subject to a prepayment fee of up to 3% of the principal amount of the Senior Notes prepaid. In addition, in connection with any refinancing of our debt, we would also accelerate the recognition of the balance of the unamortized debt discount and the debt issuance costs as of the date of any refinancing.

We may incur operating losses in future years. We believe that our existing cash and cash equivalent balances and cash we expect to generate from operations will be sufficient to fund our operations, and to meet our existing obligations for the next twelve months, including our obligations under the Senior Notes and the Convertible Notes. We base this expectation on our current operating and financing plans and the anticipated impact of the cash expected to be received from Collegium pursuant to the Commercialization Agreement, any of which may change as a result of many factors.

The following table summarizes our cash flow activities (in thousands):

Nine Months Ended September 30,

2019

2018

Cash provided by (used in) operating activities

$

82,620

$

56,735

Cash (used in) provided by investing activities

(1,526

)

(5,562

)

Cash (used in) provided by financing activities

(137,862

)

(56,153

)

Net (decrease) increase in cash and cash equivalents

$

(56,768

)

$

(4,980

)

Cash Flows from Operating Activities

The increase in cash provided by operating activities during the nine months ended 30 september 2019 compared to the same period in 2018 is primarily due to the receipt of $32.0 million from the Purdue settlement in January 2019.

Cash Flows from Investing Activities

The reduction in cash used by investing activities during the nine months ended 30 september 2019 compared to the same period in 2018 is primarily due to the $3.0 million investment in a convertible instrument and higher purchases of property and equipment in 2018.

Cash Flows from Financing Activities

The increase in cash used in financing activities during the nine months ended 30 september 2019 compared to the same period in 2018 is primarily due to the $42.5 million in higher 2019 principal payments on our Senior Notes and $30.0 million in cash used in the Convertible Note Exchange in August 2019.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the quarter ended 30 september 2019.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the sources and effects of our market risk compared to the disclosures in Item 7A of our Annual Report on the 2018 Form 10-K, other than the matters described below.

Interest Rate Risk. We are subject to interest rate fluctuation exposure through our borrowings under the Senior Secured Credit Facility and our investment in money market accounts which bear a variable interest rate. Borrowings under the Senior Secured Credit Facility bear interest at a rate equal to the three-month LIBOR plus 9.75% per annum, subject to a 1.0% LIBOR floor and certain thresholds. Current LIBOR rates are above the 1.0% LIBOR floor, and the interest rate on our borrowings under the Senior Secured Credit Facility is currently 12,08% per annum. An increase in the three-month LIBOR of 100 basis points above the current three-month LIBOR rates would have an insignificant effect on our interest expense for 2019, assuming we make timely scheduled principal payments. Such increase was limited as our interest rate for our senior Secured Credit Facility is capped at 12.95%. À partir de 30 september 2019, we had $265.0 million aggregate principal amount of convertible senior notes outstanding, which are fixed rate instruments. In addition, it is expected that LIBOR will be phased out by the end of 2021. The Alternative Reference Rates Committee of the Federal Reserve Board has identified the Secured Overnight Financing Rate (SOFR) as the preferred alternative to LIBOR. As our Senior Secured Credit Facility utilizes LIBOR as a factor in determining the applicable interest rate, the expected discontinuation and transition may require us to renegotiate certain terms of the agreement to replace LIBOR with a new reference rate, which could increase the cost of servicing our debt and have an adverse effect on our results of operations and cash flows.

The goals of our investment policy are the preservation of capital, fulfillment of liquidity needs and fiduciary control of cash. To achieve our goal of maximizing income without assuming significant market risk, we maintain our excess cash and cash equivalents in money market funds and short term corporate debt securities. Because of the short term maturities of our cash equivalents, we do not believe that a decrease in interest rates would have any material negative impact on the fair value of our cash equivalents.

Foreign Currency Risk. We have not had any significant transactions in foreign currencies, nor did we have any significant balances that were due or payable in foreign currencies at 30 september 2019. Accordingly, significant changes in foreign currency rates would not have a material impact on our financial position and results of operations.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective.

We review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the three months ended 30 september 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II — OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see “Note 12. Commitments and Contingencies – Legal Matters” of the Notes to unaudited condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A.    RISK FACTORS

The risk factors presented below amend and restate the risk factors previously disclosed in our 2018 Form 10-K and our Quarterly Report on Form 10-Q for the three months ended March 31, 2019 filed with the SEC on May 9, 2019. In addition to other information in this report, the following factors should be considered carefully in evaluating an investment in our securities. If any of the risks or uncertainties described in this Form 10‑K actually occurs, our business, results of operations or financial condition would be materially and adversely affected. The risks and uncertainties described below have been grouped under general risk categories, one or more of which categories may be applicable to the risk factor described. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial may also become important factors that may harm our business, results of operations and financial condition.

Risks Related to Commercial, Regulatory and Other Business Matters

We rely on Collegium Pharmaceutical Inc. to commercialize NUCYNTA and NUCYNTA ER and their failure to successfully commercialize these products could have a material adverse effect on our business, financial condition and results of operations.

In December 2017, we entered into a commercialization agreement with Collegium pursuant to which Collegium assumed, effective as of January 9, 2018, responsibility for the sales and marketing of NUCYNTA® and NUCYNTA® ER. Collegium will pay us royalties based on net sales of NUCYNTA and NUCYNTA ER. Although we have retained certain rights to promote NUCYNTA and NUCYNTA ER to physicians that Collegium does not call on, we do not have any immediate plans to exercise such rights. As a result, the commercial success of NUCYNTA and NUCYNTA ER will depend almost entirely on Collegium’s commercialization efforts.

As a company, Collegium has a limited history of selling and marketing pharmaceutical products. Collegium’s ability to successfully commercialize and generate revenues from NUCYNTA and NUCYNTA ER, our largest selling product, depends on a number of factors, including, but not limited to, Collegium’s ability to:

develop and execute its sales and marketing strategies for NUCYNTA and NUCYNTA ER;

achieve, maintain and grow market acceptance of, and demand for, NUCYNTA and NUCYNTA ER;

obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third party payers;

maintain and manage the necessary sales, marketing, manufacturing, managed markets, and other capabilities and infrastructure that are required to successfully integrate and commercialize NUCYNTA and NUCYNTA ER;

obtain adequate supply of NUCYNTA and NUCYNTA ER; et

comply with applicable legal and regulatory requirements.

Additional factors that may affect the success of our commercialization arrangement with Collegium include the following:

Collegium may prioritize the commercialization of their other products, including Xtampza, over NUCYNTA and NUCYNTA ER;

Collegium may pursue higher-priority programs, or change the focus of its marketing programs;

Collegium may acquire or develop alternative products;

Collegium may in the future choose to devote fewer resources to NUCYNTA and NUCYNTA ER;

changes in laws and regulations applicable to, and scrutiny of, the pharmaceutical industry, including the opioid market;

market acceptance of NUCYNTA and NUCYNTA ER may fail to increase or may decrease;


Collegium may experience financial difficulties;

Collegium may fail to comply with its obligations under our commercialization and related agreements; ou

Collegium’s involvement in governmental investigations and inquires or lawsuits and the disposition of such proceedings.

Any of the preceding factors could affect Collegium’s commitment to, and ability to perform, its obligations under the commercialization agreement, which, in turn could adversely affect the commercial success of NUCYNTA and NUCYNTA ER. Any failure by Collegium to successfully commercialize NUCYNTA and NUCYNTA ER could have a material adverse effect on our business, financial condition and results of operations.

If our commercialization agreement with Collegium terminates, we may not succeed in commercializing NUCYNTA and NUCYNTA ER on our own or through an alternative commercialization partner.

Our commercialization agreement with Collegium grants each party specified termination rights. If the agreement is terminated, we may either perform commercialization activities relating to NUCYNTA and NUCYNTA ER on our own or identify and collaborate with another commercialization partner. Both alternatives would result in us incurring greater expenses and could cause a disruption in the commercialization of the products while we expand our commercial operations or seek an alternative commercialization partner, which disruption could lead to a loss of market share and decreased demand for the products. If we elect to increase our expenditures to fund commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all, or which may not be possible due to our other financing arrangements. If we elect to seek another commercialization partner, we may be unsuccessful in identifying a satisfactory partner or, if we do successfully identify a partner, we may be unable to negotiate a new commercialization agreement on acceptable terms, or at all.

If we do not successfully commercialize Gralise, CAMBIA, and Zipsor, our business, financial condition and results of operations will be materially and adversely affected.

In October 2011, we began commercial sales of Gralise®. In June 2012, we acquired Zipsor and began commercial promotion of Zipsor in July 2012. In December 2013, we acquired CAMBIA and began commercial promotion of CAMBIA in February 2014. In addition to the risks discussed elsewhere in this section, our ability to successfully commercialize and generate revenues from Gralise, CAMBIA and Zipsor, depends on a number of factors, including, but not limited to, our ability to:

develop and execute our sales and marketing strategies for our products;

achieve, maintain and grow market acceptance of, and demand for, our products;

obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third party payers;

maintain, manage or scale the necessary sales, marketing, manufacturing, managed markets, and other capabilities and infrastructure that are required to successfully integrate and commercialize our products;

obtain adequate supply of our products;

maintain and extend intellectual property protection for our products; et

comply with applicable legal and regulatory requirements.

If we are unable to successfully achieve or perform these functions, we will not be able to maintain or increase our product revenues and our business, financial condition and results of operations will be materially and adversely affected.

We depend on one qualified supplier for the active pharmaceutical ingredient in each of our products, and we depend on third parties that are single source suppliers to manufacture our products. If there is insufficient availability of our products or the active pharmaceutical ingredients and other raw materials necessary to manufacture our products, or if our suppliers are unable to manufacture and supply our products, our sales will be adversely impacted upon depletion of the active ingredient and product inventories.

We have one qualified supplier for the active pharmaceutical ingredient in each of NUCYNTA ER, NUCYNTA, CAMBIA, Zipsor and Gralise. An affiliate of Janssen Pharma is currently the sole supplier of NUCYNTA ER pursuant to a manufacturing supply agreement we entered into with such entity in April 2015. Cambrex Corporation (Cambrex) (formerly, Halo Pharmaceutical, Inc.) is the sole supplier of NUCYNTA pursuant to a manufacturing supply agreement we entered into


with Cambrex in June 2017. Patheon Puerto Rico Inc. (Patheon) is our sole supplier for Gralise pursuant to a manufacturing and supply agreement we entered into with Patheon in September 2011. Catalent Ontario Limited (Catalent) is our sole supplier for Zipsor pursuant to a manufacturing agreement we entered into with Catalent effective June 30, 2018. MiPharm, S.p.A is our sole supplier for CAMBIA pursuant to a manufacturing and supply agreement that we assumed in connection with our acquisition of CAMBIA in December 2013. We do not have, and we do not intend to establish in the foreseeable future, internal commercial scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for commercialization and clinical trials. Our dependence on third parties for the manufacture of our products and our product candidates may adversely affect our ability to obtain such products on a timely or competitive basis, if at all. Any stock out, or failure to obtain sufficient supplies of NUCYNTA or NUCYNTA ER, or the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture NUCYNTA or NUCYNTA ER, would adversely affect Collegium’s ability to commercialize such products, which would adversely affect our results of operations and financial condition. Any stock out, quality concern or failure to obtain sufficient supplies of Gralise, CAMBIA, or Zipsor, or the necessary active pharmaceutical ingredients, excipients or components from our suppliers would adversely affect our business, results of operations and financial condition.

Hurricanes Irma and Maria caused significant devastation and damage throughout Puerto Rico in 2017, including widespread flooding and power loss. As a result, we experienced delays in the manufacture, packaging and delivery of certain dosage strengths of NUCYNTA ER in the fourth quarter of 2017 and the first quarter of 2018. We and Collegium may experience product delays or outages in the future. Any delay in the manufacture, packaging or delivery of NUCYNTA and NUCYNTA ER, whether due to the manufacturing facility at which NUCYNTA and NUCYNTA ER are produced not being fully operational for an extended period of time or otherwise, could adversely affect the ability of Collegium to commercialize such products, which could adversely affect our results of operations and financial condition.

The manufacturing process for pharmaceutical products is highly regulated, and regulators may shut down manufacturing facilities that they believe do not comply with regulations. We, our third party manufacturers and our suppliers are subject to numerous regulations, including current FDA regulations governing manufacturing processes, stability testing, record keeping, product serialization and quality standards. Similar regulations are in effect in other countries. Our third party manufacturers and suppliers are independent entities who are subject to their own unique operational and financial risks which are out of our control. If we or any third party manufacturer or supplier fails to perform as required or fails to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver adequate supplies of our products to our customers on a timely basis, or to continue our clinical trials could be adversely affected. The manufacturing processes of our third party manufacturers and suppliers may also be found to violate the proprietary rights of others. To the extent these risks materialize and adversely affect such third party manufacturers’ and/or suppliers’ performance obligations to us, and we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers or suppliers, our business, results of operation and financial condition could be adversely affected.

Our commercialization, collaborative and other arrangements may give rise to disputes over commercial terms, contract interpretation and ownership or protection of our intellectual property and may adversely affect the commercial success of our products.

We currently have a commercialization agreement with Collegium. We currently have collaboration or license arrangements with a number of companies, including Grünenthal, Janssen Pharma, Ironwood and Slán. In addition, we have in the past and may in the future enter into other commercialization or collaborative arrangements, some of which have been based on less definitive agreements, such as memoranda of understanding, material transfer agreements, options or feasibility agreements. We may not execute definitive agreements formalizing these arrangements.

Commercialization and collaborative relationships are generally complex and may give rise to disputes regarding the relative rights, obligations and revenues of the parties, including the ownership of intellectual property and associated rights and obligations, especially when the applicable collaborative provisions have not been fully negotiated and documented. Such disputes can delay collaborative research, development or commercialization of potential products, and can lead to lengthy, expensive litigation or arbitration. The terms of such arrangements may also limit or preclude us from developing products or technologies developed pursuant to such collaborations. Additionally, the commercialization or collaborative partners under these arrangements might breach the terms of their respective agreements or fail to maintain, protect or prevent infringement of the licensed patents or our other intellectual property rights by third parties. Moreover, negotiating commercialization and collaborative arrangements often takes considerably longer to conclude than the parties initially anticipate, which could cause us to enter into less favorable agreement terms that delay or defer recovery of our development costs and reduce the funding available to support key programs. Any failure by our commercialization or collaborative partners to abide by the terms of their respective agreements with us (including their failure to accurately calculate, report or pay any royalties payable to either us or


a third party or their failure to repay, in full or in part, either any outstanding receivables or any other amounts for which we are entitled to reimbursement) may adversely affect our results of operations.

We may be unable to enter into future commercialization or collaborative arrangements on acceptable terms, and we may be unable to maintain our current commercialization arrangement with Collegium on acceptable terms, either of which could harm our ability to develop and commercialize our current and potential future products and technologies. Other factors relating to collaborations that may adversely affect the commercial success of our products include:

any parallel development by a commercialization or collaborative partner of competitive technologies or products;

arrangements with commercialization or collaborative partners that limit or preclude us from developing products or technologies;

premature termination of a commercialization or collaboration agreement or the inability to renegotiate existing agreements on favorable terms; ou

failure by a commercialization or collaborative partner to devote sufficient resources to the development and commercial sales of products using our current and potential future products and technologies.

Our commercialization or collaborative arrangements do not necessarily restrict our commercialization or collaborative partners from competing with us or restrict their ability to market or sell competitive products. Our current and any future commercialization or collaborative partners may pursue existing or other development-stage products or alternative technologies in preference to those being commercialized or developed in collaboration with us.

In addition, contract disputes with customers or other third parties may arise from time to time. Our commercialization or collaborative partners, or customers or other third parties, may also terminate their relationships with us or otherwise decide not to proceed with development, commercialization or purchase of our products.

We and our commercial partners may be unable to compete successfully in the pharmaceutical industry.

Competition in the pharmaceutical industry is intense and we expect competition to increase. Competing products currently under development or developed in the future may prove superior to our products and may achieve greater commercial acceptance. Most of our principal competitors have substantially greater financial, sales, marketing, personnel and research and development resources than we or Collegium do.

Branded gabapentin is currently sold by Pfizer as Neurontin for adjunctive therapy for partial onset epileptic seizures and for the management of PHN. Pfizer’s basic U.S. patents relating to Neurontin have expired, and numerous companies have received approval to market generic versions of the immediate release product. In addition to receiving approval for marketing to treat neuropathic pain associated with DPN, Lyrica (pregabalin) has also been approved for marketing in the U.S. for the treatment of post herpetic pain, fibromyalgia, adjunctive therapy for partial onset epileptic seizures, and nerve pain associated with spinal cord injury and has captured a significant portion of the market. Moreover, Pfizer’s patents relating to Lyrica have expired, and generic versions of Lyrica (pregabalin) launched in July 2019. In January 2018, Pfizer began to sell Lyrica CR (pregabalin extended-release tablets), a once-daily treatment for the management of DPN and PHN. Arbor Pharmaceuticals, LLC’s Horizant (gabapentin enacarbil extended-release tablets) is approved for the management of PHN and Restless Leg Syndrome. There are other products prescribed for or under development for PHN which are now or may become competitive with Gralise.

An alternate formulation of diclofenac is the active ingredient in CAMBIA that is approved in the U.S. for the acute treatment of migraines in adults. CAMBIA competes with a number of triptans that are used to treat migraines and certain other headaches. Currently, eight triptans are available generically and sold in the United States (almotriptan, eletriptan, frovatriptan, naratriptan, rizatriptan, sumatriptan, sumatriptan-naproxen and zolmitriptan). Branded competitors include Zomig Nasal Spray, Onzetra, Xsail, Sumavel, Zembrace SymTouch and Treximet, which is a fixed-dose combination product containing sumatriptan and naproxen. There are other products prescribed for or under development for the treatment or prevention of migraines that are now or may become competitive with CAMBIA, including CGRP inhibitor products.

Diclofenac, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S. for the treatment of mild to moderate pain in adults, including the symptoms of arthritis. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate pain in the acute setting. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.


Tapentadol, the active pharmaceutical ingredient in NUCYNTA and NUCYNTA ER, is a proprietary opioid analgesic that is marketed in the U.S. by our commercialization partner Collegium. NUCYNTA and NUCYNTA ER compete with a number of branded and generic products that are widely used to treat moderate to severe pain, including neuropathic pain associated with DPN, and acute pain, respectively. These products include OxyContin (oxycodone hydrochloride extended-release tables), which is owned by Purdue and is approved for marketing in the U.S. for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. OxyContin has achieved significant levels of market acceptance. Unlike NUCYNTA ER, a number of long-acting opioids have product labelling related to their abuse deterrent properties, which may put NUCYNTA ER at a competitive disadvantage. There are also a number of branded and generic short and long-acting opioids, including oxycodone, oxymorphone, fentanyl patch, morphine, buprenorphine patch, tramadol, hydrocodone and hydromorphone, which have received approval and are marketed in the U.S. for the treatment of moderate to severe pain, including chronic and acute pain. More opioid development and launches of both generics and brands are expected to continue. For example, Butrans (promoted by Purdue) has been facing generic entrants since June 2017. In addition, Pfizer’s new opioid Troxyca ER was approved in 2016, but has not yet launched. Teva’s Vantrela ER was approved in 2017, but has not yet launched. Inspirion received approval for MorphaBond ER (morphine sulfate) and RoxyBond (oxycodone HCL). MorphaBond launched in the fourth quarter of 2017 and RoxyBond had a marketing start date of January 2018. Lyrica (pregabalin), which is marketed by Pfizer, is approved for marketing in the U.S. for the treatment of neuropathic pain associated with DPN. In January 2018, Pfizer began to sell Lyrica CR (pregabalin extended-release tablets), a once-daily treatment for the management of DPN and PHN. Branded and generic versions of duloxetine and lidocaine have also been approved for marketing in the U.S. for the treatment of neuropathic pain associated with DPN. There are a number of other products and treatments prescribed for, or under development for, the management of chronic and acute pain, including neuropathic pain associated with DPN, which are now or may become competitive with NUCYNTA and NUCYNTA ER. Further, in light of the FDA’s efforts to spur the development of non-opioid medications for chronic pain, we expect that additional other competitive products and treatments may be developed and commercialized.

If we or our commercialization partners are unable to negotiate acceptable pricing or obtain adequate reimbursement for our products from third party payers, our business will suffer.

Sales of our products depend significantly on the availability of acceptable pricing and adequate reimbursement from third party payers such as:

government health administration authorities;

private health insurers;

health maintenance organizations;

managed care organizations;

pharmacy benefit management companies; et

other healthcare-related organizations.

If reimbursement is not available for our products or product candidates, demand for our products may be limited. Further, any delay in receiving approval for reimbursement from third party payers could have an adverse effect on our future revenues.

Third party payers frequently require pharmaceutical companies to negotiate agreements that provide discounts or rebates from list prices and that protect the payers from price increases above a specified annual limit. We and our commercialization partners have agreed to provide such discounts and rebates to certain third party payers. We expect increasing pressure to offer larger discounts and rebates or discounts and rebates to a greater number of third party payers to maintain acceptable reimbursement levels for and access to our products for patients at co-pay levels that are reasonable and customary. Consolidation among large third party payers may increase their leverage in negotiations with pharmaceutical companies. If we or our commercialization partners are forced to provide additional discounts and rebates to third party payers to maintain acceptable access to our products for patients, our results of operations and financial condition could be adversely affected. If third party payers do not accurately and timely report the eligibility and utilization of our products under their plans, our reserves for rebates or other amounts payable to third party payers may be lower than the amount we are invoiced and we may be required to dispute the amount payable, which would adversely affect our business, financial condition and results of operations. For example, we have had, and continue to have, disputes with managed care providers over rebates related to our products. Even when rebate claims made by such managed care providers are without merit, we may be forced to pay such disputed amounts to the extent our failure to do so could otherwise adversely impact our business, such as our ability to maintain a favorable position on such provider’s formulary. In addition, if competitors reduce the prices of their products, or otherwise demonstrate that they are better or more cost effective than our products, this may result in a greater level of


reimbursement for their products relative to our products, which would reduce sales of our products and harm our results of operations. The process for determining whether a third party payer will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that such third party payer will pay for the product once coverage is approved. Third party payers may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication, including one or more of our products. Any third party payer decision not to approve pricing for, or provide adequate coverage and reimbursement of, our products, including by reducing, limiting or denying reimbursement for new products or excluding products that were previously eligible for reimbursement, would limit the market acceptance and commercial prospects of our products and harm our business, financial condition and results of operations. In addition, any third party payer decision to impose restrictions, limitations or conditions on prescribing or reimbursement of our products, including on the dosing or duration of prescriptions for our products, would harm our business, financial condition and results of operations.

There have been, and there will continue to be, legislative, regulatory and third party payer proposals to change the healthcare system in ways that could impact our ability to commercialize our products profitably. We anticipate that the federal and state legislatures and the private sector will continue to consider and may adopt and implement healthcare policies, such as the Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act, intended to curb rising healthcare costs. These cost containment measures may include: controls on government-funded reimbursement for drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs; controls on healthcare providers; challenges to or limits on the pricing of drugs, including pricing controls or limits or prohibitions on reimbursement for specific products through other means; requirements to try less expensive products or generics before a more expensive branded product; and public funding for cost effectiveness research, which may be used by government and private third party payers to make coverage and payment decisions. In California, voters rejected Proposition 61 in November 2016, a ballot initiative that would have prohibited the state from buying prescription drugs from a drug manufacturer at a price over the lowest price paid for such drug by U.S. Department of Veterans Affairs. Although Proposition 61 was defeated, these and other cost containment or price control measures, if adopted at the federal or state level, could significantly decrease the price that we or our commercialization partner receive for our products and any product that we may develop or acquire, which would harm our business, financial condition and results of operations.

If generic manufacturers use litigation and regulatory means to obtain approval for generic versions of our products, our business will be materially and adversely affected.

Under the Federal Food, Drug, and Cosmetic Act (FDCA), the FDA can approve an ANDA for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product has the same active ingredient(s) and is bioequivalent to the branded product, in addition to any data necessary to establish that any difference in strength, dosage, form, inactive ingredients or delivery mechanism does not result in different safety or efficacy profiles, as compared to the reference drug.

The FDCA requires an applicant for a drug that relies, at least in part, on the patent of one of our branded drugs to notify us of their application and potential infringement of our patent rights. Upon receipt of this notice, we would have 45 days to bring a patent infringement suit in federal district court against the company seeking approval of a product covered by one of our patents. The discovery, trial and appeals process in such suits can take several years. The filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the competitor’s application. Such litigation is often time-consuming and quite costly and may result in generic competition if the patents at issue are not upheld or if the generic competitor is found not to infringe such patents. If the litigation is resolved in favor of the applicant or the challenged patent expires during the 30-month stay period, the stay is lifted and the FDA may thereafter approve the application based on the standards for approval of ANDAs.

We have been involved in patent litigation lawsuits against filers of ANDAs (the Filers) seeking to market generic versions of NUCYNTA and NUCYNTA ER before the expiration of the patents listed in the Patent and Exclusivity Information Addendum of FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book) for these two products. A two-week bench trial was completed on April 27, 2016. On September 30, 2016, the District Court issued its opinion finding all three of the Orange Book patents valid and enforceable. On April 11, 2017, the District Court entered a final judgment, which included an injunction enjoining the Filers from engaging in certain activities with regard to tapentadol (the active ingredient in NUCYNTA) and ordering the effective date of any approval of Actavis, and Roxane’s ANDAs, and Alkem’s ANDA for NUCYNTA IR to be no earlier than the expiry of the ’364 Patent (June 27, 2025), and the effective date of any approval of Alkem’s ANDA for NUCYNTA ER to be no earlier than the expiry of the ’130 Patent (September 22, 2028). The foregoing periods of exclusivity may in the future be extended with the award of pediatric


exclusivity. In March 2019, the Federal Circuit affirmed the decision of the District Court in all respects. On April 29, 2019, Alkem filed a petition for panel rehearing and rehearing en banc with the Federal Circuit, which was denied on May 31, 2019. The period during which Aklem could have petitioned the U.S. Supreme Court for writ of certiorari has passed. As a result, the District Court’s decision is final and non-appealable.

Any introduction of one or more products generic to NUCYNTA ER, NUCYNTA, Gralise, CAMBIA, or Zipsor, whether as a result of an ANDA or otherwise, would harm our business, financial condition and results of operations. The filing of the ANDAs described above, or any other ANDA or similar application in respect to any of our products, could have an adverse impact on our stock price. Moreover, if the patents covering our products are not upheld in litigation or if a generic competitor is found not to infringe these patents, the resulting generic competition would have a material adverse effect on our business, financial condition and results of operations.

Any failure by us or our commercialization or collaborative partners to comply with applicable statutes or regulations relating to controlled substances could adversely affect our business.

Each of NUCYNTA and NUCYNTA ER are opioid analgesics that contain tapentadol. Tapentadol is a regulated “controlled substance” under the CSA. The CSA establishes, among other things, certain registration, production quotas, security, record keeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances, with Schedule II substances being the pharmaceutical products that present the highest risk of abuse. Tapentadol is listed by the DEA as a Schedule II substance under the CSA. The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical products are subject to a high degree of regulation. For example, generally all Schedule II substance prescriptions must be written and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

The DEA also conducts periodic inspections of certain registered establishments that handle controlled substances. Facilities that conduct research, manufacture, distribute, import or export controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could adversely affect our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations and in certain circumstances, violations could lead to criminal proceedings against us or our manufacturing and distribution partners, and our respective employees, officers and directors.

In addition to federal regulations, many individual states also have controlled substances laws. Although state controlled substances laws generally mirror federal law, because the states are separate jurisdictions they may separately schedule our products. Any failure by us or our partners to obtain separate state registrations, permits or licenses to obtain, handle and distribute tapentadol or to meet applicable regulatory requirements could lead to enforcement and sanctions by state or federal authorities, including the DEA. Such an enforcement action or sanction could adversely affect our business, results of operations and financial condition.

Limitations on the production of Schedule II substances in the U.S. could limit the ability of Collegium to successfully commercialize NUCYNTA and NUCYNTA ER which, in turn, could have a material adverse impact on our business.

The availability and production of all Schedule II substances, including tapentadol, is limited by the DEA through a quota system that includes a national aggregate quota, production quotas for individual manufacturers and procurement quotas that authorize the procurement of specific quantities of Schedule II controlled substances for use in drug product manufacturing. The DEA annually establishes an aggregate quota for total tapentadol production in the U.S. based on the DEA’s estimate of the quantity needed to meet commercial and scientific needs. The aggregate quota of tapentadol that the DEA allows to be produced in the U.S. annually is allocated among applicable individual drug manufacturers, each of whom must submit applications at least annually to the DEA for individual production quotas. In turn, our third party manufacturers of NUCYNTA and NUCYNTA ER have to obtain a procurement quota to source tapentadol for the production of NUCYNTA and NUCYNTA ER.

The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas for these activities. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether to make such adjustments. Based on a variety of factors, including public policy considerations, the DEA may set the aggregate quota lower for tapentadol than the total amount requested by individual manufacturers. Through our manufacturing partner we are permitted to ask the DEA to increase our manufacturer’s procurement quota after it is initially established. However, we cannot


be certain that the DEA would act favorably upon such a request. In addition, our manufacturers obtain a procurement quota for tapentadol for all tapentadol products manufactured at their facility, which is allocated to NUCYNTA and NUCYNTA ER, as applicable, at the manufacturer’s discretion. The DEA recently proposed reducing the quota for controlled substances to be manufactured in the U.S. in 2019, although no changes to the quotas for tapentadol were recommended. Additionally, the DEA has proposed various changes to its process for setting production and procurement quota. Any delay or refusal by the DEA or our manufacturers in establishing the production or procurement quota or granting sufficient production or procurement quota to meet commercial demand or clinical needs, or any reduction by the DEA or our manufacturer in the allocated quota for tapentadol, could adversely affect the ability of Collegium to commercialize NUCYNTA and NUCYNTA ER and in turn adversely affect our business, results of operations and financial condition.

The FDA-mandated Risk Evaluation and Mitigation Strategy program may limit the commercial success of NUCYNTA ER and NUCYNTA.

NUCYNTA ER and NUCYNTA are subject to a FDA-mandated Opioid Analgesic Risk Evaluation and Mitigation Strategy (REMS) protocol. This REMS protocol requires opioid manufacturers to make training available to healthcare practitioners (and their patients) who practice pain management and prescribe immediate and extended release opioids concerning the safe use of opioid analgesics. The FDA-mandated REMS protocol may reduce the number of physicians, healthcare practitioners and pharmacies that are willing to prescribe opioid products including NUCYNTA ER and/or NUCYNTA, as well as the number of patients who are willing to use these products. Because of these factors, if Collegium is not able to successfully promote NUCYNTA ER and NUCYNTA, our business, results of operations and financial condition could be adversely affected.

Business interruptions could limit our ability to operate our business and may also effect the success of our commercialization partners.

Our operations and infrastructure, and those of our partners, third party suppliers and vendors are vulnerable to damage or interruption from cyber-attacks and security breaches, human error, natural disasters, fire, flood, the effects of climate change, power loss, telecommunications failures, equipment failures, intentional acts of theft, vandalism, terrorism and similar events. We have not established a formal disaster recovery plan, and our back-up operations and our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations.

For example, Hurricanes Irma and Maria caused significant devastation and damage throughout Puerto Rico in 2017, including widespread flooding and power loss. As a result, we experienced delays in the manufacture, packaging and delivery of certain dosage strengths of NUCYNTA ER in the fourth quarter of 2017 and the first quarter of 2018. We and Collegium may continue to experience further outages in the future. Any delay in the manufacture, packaging or delivery of NUCYNTA ER and NUCYNTA could adversely affect the success of our commercialization partner Collegium, which in turn could adversely affect our business, financial condition and results of operations.

Data breaches and cyber-attacks could compromise our intellectual property or other sensitive information and cause significant damage to our business.

In the ordinary course of our business, we collect, maintain and transmit sensitive data on our computer networks and information technology systems, including our intellectual property and proprietary or confidential business information. The secure maintenance of this information is critical to our business. We believe that companies have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to a state-sponsored attack, and motives (including corporate espionage). Cyber threats may be generic, or they may be custom-crafted to target our information systems. Cyber-attacks are becoming increasingly more prevalent and much harder to detect and defend against. Our network and storage applications and those of our third party vendors may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions.

Although our Board of Directors, through our Audit Committee, regularly discusses with management our policies and practices regarding information technology systems, information management systems and related infrastructure, including our information technology and information management security, risk management and back-up policies, practices and infrastructure, it is often difficult to anticipate or immediately detect such incidents and the damage that may be caused by such incidents. These data breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information, including our financial information or the


information of our business partners. Cyber-attacks could cause us to incur significant remediation costs, result in product development delays, disrupt key business operations and divert attention of management and key information technology resources. Our network security and data recovery measures and those of our third party vendors may not be adequate to protect against such security breaches and disruptions. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our business.

We have recently experienced a significant transition in our executive management team.

We recently experienced changes in our executive management team as we transitioned our corporate headquarters to Lake Forest, Illinois. If our executive management team is not able, in a timely manner, to develop, implement and execute successful business strategies and plans to maintain and increase our product revenues, our business, financial condition and results of operations will be materially and adversely affected. While our Chief Executive Officer and other executive officers have significant industry-related experience, it may take time for the team to become fully integrated and such team may continue to evolve until a fully integrated team is established. Any delay in the integration of our executive management team, or any future changes to such management team, could affect our ability to develop, implement and execute our business strategies and plans, which could have a material adverse effect on our business, financial condition and results of operations.

Further, with our executive management team, our future business strategies and plans may differ materially, or may continue to evolve, from those we previously pursued. If our business strategies and plans, including our commercialization arrangement with Collegium, or our efforts to realize future operational efficiencies, cause disruption in our business or operations or do not achieve the level of success or results we anticipate, our business, financial condition and results of operations will be materially and adversely affected.

Our success is dependent in large part upon the continued services of our executive management team with whom we do not have employment agreements.

Our success is dependent in large part upon the continued services of members of our executive management team, and on our ability to attract and retain key management and operating personnel, especially in light of our headquarters relocation. We do not have agreements with any of our executive officers that provide for their continued employment with us. Management, scientific and operating personnel are in high demand in our industry and are often subject to competing offers. The loss of the services of one or more members of management or key employees or the inability to hire additional personnel as needed could result in delays in the research, development and commercialization of our products and potential product candidates, or otherwise adversely impact our business.

Risks Related to Product Development

The development of drug candidates, such as long-acting cosyntropin, is inherently difficult and uncertain, and we cannot be certain that any of our product candidates or those of our collaborative partners will be approved for marketing or, if approved, will achieve market acceptance.

Clinical development is a long, expensive and uncertain process and is subject to delays and failures. As a condition to regulatory approval, each product candidate must undergo extensive and expensive preclinical studies and clinical trials to demonstrate to a statistically significant degree that the product candidate is safe and effective. The results at any stage of the development process may lack the desired safety, efficacy or pharmacokinetic characteristics. Positive or encouraging results of prior clinical trials are not necessarily indicative of the results obtained in later clinical trials, as has occurred in the past in certain of our Phase 3 trials. Further, product candidates in later clinical trials may fail to show the desired safety and efficacy despite having progressed in development. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

In November 2017 we acquired the exclusive rights to market long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. Long-acting cosyntropin is an alcohol-free formulation of a synthetic analogue of ACTH. In February 2019, notification of acceptance for filing was received from the FDA for our development partner’s 505(b)(2) NDA for the novel injectable formulation of long-acting cosyntropin for use as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. On October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin. The primary focus of the CRL relates to the FDA's determination that certain pharmacodynamic parameters were not adequately achieved. We and our development partner are reviewing the CRL and will determine if the FDA’s comments can be adequately addressed.


The expected timing of NDA filings and related approvals, the successful execution of applicable clinical trials and our overall strategy with regard to the product candidate’s application may not achieve our intended results. Our overall strategy to bring our injectable formulation of long-acting cosyntropin to market in the U.S. and Canada is subject to certain risks and uncertainties. For example, we and our development partner are reviewing the CRL to determine if the FDA’s comments can be adequately addressed. Further, if our product, manufacturing processes or facilities do not satisfy regulatory requirements, including as a result of issues relating to manufacturing, FDA approval may be delayed or not be granted. Even if we receive FDA approval for our intended diagnostic indication, our ability to commercialize the product for diagnostic use will be subject to the availability of saleable product, which our collaborative partner may not be able to supply. Even if we are able to procure saleable product, our sales of the product may not generate significant revenue.

Product candidates, such as long-acting cosyntropin, are subject to the risk that any or all of them may be found to be ineffective or unsafe, or otherwise may fail to receive necessary regulatory clearances. The FDA or other applicable regulatory agencies may determine that our data is not sufficiently compelling to warrant marketing approval and require us to engage in additional clinical trials or provide further analysis, which may be costly and time-consuming. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in preclinical studies or earlier clinical trials. If our current or future product candidates fail at any stage of development, they will not receive regulatory approval, we will not be able to commercialize them and we will not receive any return on our investment in those product candidates.

Other factors could delay or result in the termination of our or our collaborative partner’s current and future clinical trials and related development programs, including:

negative or inconclusive results;

patient enrollment rates;

patient noncompliance with the protocol;

adverse medical events or side effects among patients during the clinical trials;

any findings resulting from FDA inspections of clinical operations;

failure to meet FDA preferred or recommended clinical trial design, end points or statistical power;

failure to comply with good clinical practices;

failure of third party clinical trial vendors to comply with applicable regulatory laws and regulations;

compliance with applicable laws and regulations;

inability of third party clinical trial vendors to satisfactorily perform their contractual obligations, comply with applicable laws and regulations or meet deadlines;

delays or failures in obtaining clinical materials or manufacturing sufficient quantities of the product candidate for use in clinical trials;

delays or failures in recruiting qualified patients to participate in clinical trials; et

actual or perceived lack of efficacy or safety of the product candidate.

We are unable to predict whether any product candidates, including long-acting cosyntropin, will receive regulatory clearances or be successfully manufactured or marketed. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, the time frame for commercializing a product is long and uncertain. Even if long-acting cosyntropin and any other product candidates receive regulatory clearance, these products may not achieve or maintain market acceptance. If it is discovered that our or our collaborators’ products or technologies could have adverse effects or other characteristics that indicate they may be ineffective as therapeutics, our product development efforts and our business could be significantly harmed.

Even assuming our or our collaborative partners’ products obtain regulatory approval, successful commercialization requires:

a cost-effective commercial scale production; et

reimbursement under private or governmental health plans.


Any material delay or failure in the governmental approval process, the successful production of commercial product or the successful commercialization of our approved product candidates, or those of our collaborative partners, could adversely impact our business, financial condition and results of operations.

Our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin, which has delayed, and may result in the abandonment of, development efforts for long-acting cosyntropin for use as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency.

On October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin seeking approval for use as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. The primary focus of the CRL relates to the FDA's determination that certain pharmacodynamic parameters were not adequately achieved. As a result of the CRL, our development efforts for long-acting cosyntropin have been delayed.

We and our development partner are reviewing the CRL and will determine if the FDA’s comments can be adequately addressed. If we and our development partner determine that we cannot successfully address the FDA’s comments, or cannot agree how to successfully address the FDA’s comments, we may be forced to delay or abandon our development efforts for long-acting cosyntropin for use as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency, which would materially and adversely affect our business.

Even if we and our development partner mutually determine that we can successfully address the FDA’s comments, and are able to resubmit the NDA for long-acting cosyntropin, we cannot be certain that the additional information provided to the FDA will be adequate to address the FDA’s comments in the CRL, or that we will be successful in obtaining FDA approval of long-acting cosyntropin. The FDA may provide review commentary at any time during the resubmission and review process, which could adversely affect or even prevent the approval of long-acting cosyntropin. For example, the FDA could require the completion of further clinical trials or other studies, which could further delay or preclude any approval of the NDA and require significant additional funding. In addition, if we and our development partner proceed with resubmitting the NDA and are unable to identify appropriate remediations to issues that the FDA may raise, we and our development partners may not have sufficient time or financial resources to conduct future activities to remediate issues raised by the FDA.

We and our collaborative partners customarily depend on third party contract research organizations, clinical investigators and clinical sites to conduct clinical trials with regard to product candidates, and if they do not perform their regulatory, legal and contractual obligations, or successfully enroll patients in and manage our clinical trials, we and our collaborative partners may not be able to obtain regulatory approvals for product candidates, including long-acting cosyntropin.

We and our collaborative partners customarily rely on third party contract research organizations and other third parties to assist us in designing, managing, monitoring and otherwise conducting clinical trials. We and our collaborative partners do not control these third parties and, as a result, we and our collaborative partners may be unable to control the amount and timing of resources that they devote to our or our collaborative partners’ clinical trials.

Although we and our collaborative partners rely on third parties to conduct clinical trials, we and our collaborative partners are responsible for confirming that each clinical trial is conducted in accordance with its general investigational plan and protocol, as well as the FDA’s and other applicable regulatory agencies’ requirements, including good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. If we, contract research organizations or other third parties assisting us or our collaborative partners with clinical trials fail to comply with applicable good clinical practices, the clinical data generated in such clinical trials may be deemed unreliable and the FDA, or other applicable regulatory agencies, may require us or our collaborative partners to perform additional clinical trials before approving any marketing applications with regard to product candidates. We cannot be certain that, upon inspection, the FDA or other applicable regulatory agencies will determine that any of our clinical trials or our collaborative partners comply with good clinical practices. In addition, clinical trials must be conducted with product produced under the FDA’s cGMP regulations and similar regulations outside of the U.S. Our or our collaborative partners’ failure, or the failure of our product manufacturers, to comply with these regulations may require the repeat or redesign of clinical trials, which would delay the regulatory approval process.

We and our collaborative partners also customarily rely on clinical investigators and clinical sites to enroll patients and other third parties to manage clinical trials and to perform related data collection and analysis. If clinical investigators and clinical sites fail to enroll a sufficient number of patients in such clinical trials or fail to enroll them on the planned schedule, these trials may not be completed or completed as planned, which could delay or prevent us or our collaborative partners from obtaining regulatory approvals for product candidates.


Agreements with clinical investigators and clinical sites for clinical testing and for trial management services place substantial responsibilities on these parties, which could result in delays in, or termination of, clinical trials if these parties fail to perform as expected. If these clinical investigators, clinical sites or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to clinical protocols or for other reasons, clinical trials may be extended, delayed or terminated, and we and our collaborative partners may be unable to obtain regulatory approval for, or successfully commercialize, product candidates.

If we or our collaborative partners are unable to obtain or maintain regulatory approval for our products, our raw materials or product candidates, we will be limited in our ability to commercialize our products, and our business will suffer.

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the FDA may not agree with our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. For example, on October 18, 2019, our development partner received a Complete Response Letter (CRL) from the FDA regarding the NDA for long-acting cosyntropin. Even if we and our development partner mutually determine that we can successfully address the FDA’s comments, and are able to resubmit the NDA for long-acting cosyntropin, there is no guarantee that the additional information provided to the FDA will be adequate to address the FDA’s comments in the CRL, or that we will be successful in obtaining FDA approval of long-acting cosyntropin. Significant clinical trial delays could impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review and other requirements. The FDA recently notified the Company it would require two post-marketing studies related to Gralise. In addition, the discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Manufacturers of approved products are also subject to ongoing regulation and inspection, including compliance with FDA regulations governing cGMP or Quality System Regulation (QSR). The FDCA, the CSA and other federal and foreign statutes and regulations govern and influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products. In addition, we and our partners are also subject to ongoing DEA regulatory obligations, including annual registration renewal, security, record keeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. The failure to comply with these regulations could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, non-renewal of marketing applications or authorizations or criminal prosecution, which could adversely affect our business, results of operations and financial condition.

We are also required to report adverse events associated with our products to the FDA and other regulatory authorities. Unexpected or serious health or safety concerns could result in labeling changes, recalls, market withdrawals or other regulatory actions. Recalls may be issued at our discretion or at the discretion of the FDA or other empowered regulatory agencies. For example, in June 2010, we instituted a voluntary class 2 recall of 52 lots of our 500mg Glumetza product after chemical traces of 2,4,6-tribromoanisole (TBA) were found in the product bottle.

We are subject to risks associated with NDAs submitted under Section 505(b)(2) of the FDCA.

The products we or our collaborative partners develop or acquire generally are or will be submitted for approval under Section 505(b)(2) of the FDCA, which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. For instance, the NDA for Gralise relies on the FDA’s prior approval of Neurontin, the immediate release formulation of gabapentin initially approved by the FDA.

For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications, known as “Paragraph IV certifications,” that certify any patents listed in the Orange Book publication in respect to any product referenced in the 505(b)(2) application are invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) application. Under the Hatch-Waxman Act, the holder of the NDA which the


505(b)(2) application references may file a patent infringement lawsuit after receiving notice of the Paragraph IV certification. Filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the 505(b)(2) application. Accordingly, we may invest a significant amount of time and expense in the development of one or more products only to be subject to significant delay and patent litigation before such products may be commercialized, if at all. A Section 505(b)(2) application may also not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. The FDA may also require us to perform one or more additional clinical studies or measurements to support the change from the approved product. The FDA may then approve the new formulation for all or only some of the indications sought by us. If the FDA disagrees with the use of the Section 505(b)(2) regulatory pathway for product candidates, we would need to reconsider our plans and might not be able to obtain approval for product candidates in a timely or cost-efficient manner, or at all. The FDA may also reject our future Section 505(b)(2) submissions and may require us to file such submissions under Section 501(b)(1) of the FDCA, which could be considerably more expensive and time consuming.

Risks Related to Our Industry

Changes in laws and regulations applicable to, and increased scrutiny and investigations of, the pharmaceutical industry, including the opioid market, may adversely affect our business, financial condition and results of operations.

The manufacture, marketing, sale, promotion, and distribution of our products are subject to comprehensive government regulation. Changes in laws and regulations applicable to, and increased scrutiny and investigations of, the pharmaceutical industry, including the opioid market, could adversely affect our business and our ability to commercialize Gralise, CAMBIA and Zipsor as well as Collegium’s ability to commercialize NUCYNTA and NUCYNTA ER, thereby adversely affecting our financial condition and results of operations.

For instance, federal, state, and local governments have for the last several years given significant attention to the public health issue of opioid abuse. In 2016, the Centers for Disease Control and Prevention (CDC) issued national, non-binding guidelines on the prescribing of opioids, providing recommended considerations for primary care providers when prescribing opioids, including specific considerations and cautionary information about opioid dosage increases and morphine milligram equivalents (MME). A number of third party payers have adopted or are considering adopting some or all of these CDC guidelines to limit access to higher doses of opioids. Industry associations and trade groups are also changing or considering changes to guidelines relevant to opioid prescriptions along similar lines. In addition, a number of state legislatures across the country have enacted legislation with some type of limit, guidance, or requirement related to opioid prescribing, including seeking to limit the duration and quantity of initial prescriptions of opioids and to mandate the use by prescribers of prescription drug databases. At the federal level, the White House Office of National Drug Control Policy (ONDCP) and the National Institutes of Health (NIH) are coordinating efforts between the FDA, the DEA, the U.S. Department of Health and Human Services, and pharmaceutical industry groups to research and develop effective non-opioid pain relievers. In July 2018, the DEA issued a final rule, “Controlled Substances Quotas,” to strengthen the process for setting controls over diversion of controlled substances and to make other improvements in the quota management regulatory system for production, manufacturing, and procurement of controlled substances. The DEA also continues to increase its efforts to hold manufacturers, distributors, prescribers, and pharmacies accountable through various enforcement actions as well as the implementation of compliance practices for controlled substances. The DEA also has reduced the quota for controlled substances to be manufactured in the U.S. each year for the past few years, although no changes to the 2019 quotas for tapentadol (NUCYNTA) were recommended. Further, the FDA has updated the “black-box” warnings on immediate release opioids highlighting the risk of misuse, abuse, addiction, overdose, and death in conjunction with the implementation of a Risk Evaluation and Mitigation Strategies (REMS) for these same products. Extended release opioids have been subject to a separate REMS since July 2012. The FDA has also emphasized that it will continue to evaluate patient risk associated with exposure to opioids, and that it will work to reduce the number, dosages and the duration of opioid prescriptions, where appropriate. In October 2018 Congress approved H.R. 6, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, and President Trump signed such legislation into law. These regulatory actions, including the SUPPORT Act and other similar legislation or policy initiatives, may adversely impact the commercialization of opioids generally, including NUCYNTA and NUCYNTA ER.

In addition, various federal and state governmental entities, including the U.S. Department of Justice (DOJ) and a number of state attorneys general, have launched investigations into the marketing and sales practices of pharmaceutical companies that market or have marketed opioid and non-opioid pain medications, including us. For instance, we have received subpoenas or civil investigative demands from the DOJ and several State Attorneys General and other state regulators seeking documentation and information in connection with our historical sales and marketing of opioid products. We also received a subpoena from the State of California Department of Insurance (CDI) seeking information relating to our historical sales and marketing of Gralise. There has been recent regulatory attention focused on gabapentin as a result of a perceived risk of the


compound being used as a potentiator for opioid abuse. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks relating to substance abuse, several states have scheduled gabapentin as a controlled substance. We have also received notice from the FDA that it has requested that all companies that hold an NDA for gabapentanoids conduct two clinical trials to assess gabapentin’s abuse liability. One clinical trial is intended to address the abuse potential of gabapentin alone. The other clinical trial is intended to evaluate gabapentin’s abuse potential when taken in combination with an opioid drug.  Depending on the results of these studies, additional safety labeling, the implementation of a REMS protocol and/or scheduling of gabapentanoids, as a class or by formulation type, could be mandated by the FDA which, in turn, could result in increased expenses or have a material adverse impact on either the commercial prospects of our products or our ability or our partner’s ability to commercialize our products. Continued changes in regulations and legislation applicable to gabapentin could have a material adverse impact on the commercial prospects of Gralise which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

Governmental regulators could take measures that could have a negative effect on our business and our products. For example, in 2017 Endo Pharmaceuticals, Inc. voluntarily withdrew, at the FDA’s request, OPANA ER from the market due to the FDA’s view that the risks associated with the use of the product outweighed the potential benefits. Any similar or other negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to NUCYNTA or NUCYNTA ER, including additional label modifications, additional manufacturing restrictions or additional restrictions on sales, would adversely affect Collegium’s ability to commercialize NUCYNTA and NUCYNTA ER and, in turn, adversely affect our business, results of operations and financial condition. Further, the FDA is in the process of issuing guidance to encourage the development of nonaddictive alternatives to opioid pain medications. Such efforts intended to spur the development of non-opioid medications for chronic pain could negatively impact the commercialization of opioids generally, including NUCYNTA and NUCYNTA ER. Likewise, any negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to our other products could adversely affect our business, results of operations, and financial condition.

The regulatory actions described above, as well as the related litigation and investigations, not only create financial and operational pressure on our company, but could also put pressure on other companies in our industry and with which we have contractual arrangements. Such pressures could negatively impact our contractual counterparties and may give rise to contract cancellations, breaches or rejections in bankruptcy. Furthermore, in the event that a contract counterparty seeks to reject a contract, we may have an unsecured claim for damages, which may not be paid in full (if at all), and we may be forced to return payments made within 90 days of the date of filing for bankruptcy protection. If any of these events should occur, it may have a material adverse effect on our business, financial condition and results of operations.

The foregoing and other similar initiatives and actions, whether taken by governmental authorities or other industry stakeholders, may result in the reduced availability, prescribing, sales and use of our products, which could adversely affect our ability to commercialize Gralise, CAMBIA and Zipsor, as well as Collegium’s ability to commercialize NUCYNTA and NUCYNTA ER, thereby adversely affecting our business, financial condition and results of operations.

Heightened attention on the problems associated with the abuse of opioids could adversely affect Collegium’s ability to commercialize NUCYNTA and NUCYNTA ER, which would adversely affect our financial condition and results of operations.

In recent years, there has been increased public attention on the public health issue of opioid abuse. The ability of drug abusers to discover previously unknown ways to abuse and misuse opioid products; public inquiries and governmental investigations into prescription drug abuse; litigation and heightened regulatory activity regarding the sales, marketing, distribution or storage of opioid products, among other things, could cause additional unfavorable publicity regarding the use and misuse of opioids, which could have a material adverse effect on opioid products, the reputation of the opioid manufacturers and the ability of Collegium to successfully commercialize NUCYNTA and NUCYNTA ER. Such negative publicity could reduce the potential size of the market for NUCYNTA and NUCYNTA ER, and decrease the revenues Collegium is able to generate from their sale, which in turn would adversely affect our financial condition and results of operations. Additionally, such increased scrutiny of opioids generally, whether focused on NUCYNTA and NUCYNTA ER or otherwise, could have the effect of negatively impacting relationships with healthcare providers and other members of the healthcare community, reducing the overall market for opioids or reducing the prescribing and use of NUCYNTA and NUCYNTA ER.

Pharmaceutical marketing is subject to substantial regulation in the U.S. and any failure by us or our commercial and collaborative partners to comply with applicable statutes or regulations could adversely affect our business.


All marketing activities of Collegium associated with NUCYNTA and NUCYNTA ER, and our current marketing activities associated with Gralise, CAMBIA, and Zipsor, as well as marketing activities related to any other products that we may acquire, or for which we or our collaborative partners obtain regulatory approval, are and will be subject to numerous federal and state laws governing the marketing and promotion of pharmaceutical products. The FDA regulates post-approval promotional labeling and advertising to ensure that they conform to statutory and regulatory requirements. In addition to FDA restrictions, the marketing of prescription drugs is subject to laws and regulations prohibiting fraud and abuse under government healthcare programs. For example, the federal healthcare program anti-kickback statute prohibits giving things of value to induce the prescribing or purchase of products that are reimbursed by federal healthcare programs, such as Medicare and Medicaid. In addition, federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government. Under these laws, in recent years, the federal government has brought claims against drug manufacturers alleging that certain marketing activities caused false claims for prescription drugs to be submitted to federal programs. Many states have similar statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, and, in some states, such statutes or regulations apply regardless of the payer.

Governmental authorities may also seek to hold us responsible for any failure of our commercialization or collaborative partners to comply with applicable statutes or regulations. If we, or our commercial or collaborative partners, fail to comply with applicable FDA regulations or other laws or regulations relating to the marketing of our products, we could be subject to criminal prosecution, civil penalties, seizure of products, injunctions and exclusion of our products from reimbursement under government programs, as well as other regulatory or investigatory actions against our product candidates, our commercial or collaborative partners or us.

We may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.

Companies may not promote drugs for “off-label” use—that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA. Physicians may prescribe drug products for off-label uses, and such off-label uses are common across some medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDCA and FDA regulations restrict communications on the subject of off-label uses of drug products by pharmaceutical companies. The Office of Inspector General of the U.S. Department of Health and Human Services (OIG), the FDA, and the DOJ all actively enforce laws and regulations prohibiting promotion of off-label use and the promotion of products for which marketing clearance has not been obtained. If any of the investigations of the DOJ, the Attorneys General identified above, and the CDI, as well as the actions filed by states and municipalities against us, result in a finding that we engaged in wrongdoing, including sales and marketing practices for our current and future products that violate applicable laws and regulations, we could incur significant liabilities. Such liabilities would harm our business, financial condition and results of operations as well as divert management’s attention from our business operations and damage our reputation. For additional information regarding potential liability, see also “ – Governmental investigations and inquiries, regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our historical commercialization of opioids could adversely affect our business, financial condition and results of operations."

Healthcare reform could increase our expenses and adversely affect the commercial success of our products.

The ACA includes numerous provisions that affect pharmaceutical companies. For example, the ACA seeks to expand healthcare coverage to the uninsured through private health insurance reforms and an expansion of Medicaid. The ACA also imposes substantial costs on pharmaceutical manufacturers, such as an increase in liability for rebates paid to Medicaid, new drug discounts that must be offered to certain enrollees in the Medicare prescription drug benefit and an annual fee imposed on all manufacturers of brand prescription drugs in the U.S. The ACA also requires increased disclosure obligations and an expansion of an existing program requiring pharmaceutical discounts to certain types of hospitals and federally subsidized clinics and contains cost-containment measures that could reduce reimbursement levels for pharmaceutical products. The ACA also includes provisions known as the Physician Payments Sunshine Act, which require manufacturers of drugs, biologics, devices and medical supplies covered under Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals. Failure to report appropriate data may result in civil or criminal fines and/or penalties. These and other aspects of the ACA, including regulations that may be imposed in connection with the implementation of the ACA, such as the 340B Program (which requires pharmaceutical manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices), could increase our expenses and adversely affect our ability to successfully commercialize our products and product candidates.


Many members of Congress and President Trump have pledged to repeal the ACA. In January 2017, the House and Senate passed a budget resolution that authorized Congressional committees to draft legislation to repeal all or portions of the ACA and permits such legislation to pass with a majority vote in the Senate. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the ACA and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of burdensome provisions of the ACA to the maximum extent permitted by law. Although several attempts to repeal and replace the ACA failed to pass both houses of Congress or have been limited or rejected by Federal courts, there is still uncertainty with respect to the impact President Trump’s administration and the Congress may have, if any, and any changes will likely take time to unfold, as will the ACA-related lawsuits that are working their way through the Federal judicial system. Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry, could adversely affect our ability to successfully commercialize our products and product candidates. In addition, President Trump, members of Congress, and state elected officials have indicated that reducing the price of prescription drugs will be a priority. The implementation of any price controls, caps on prescription drugs or price transparency requirements, whether at the federal level or state level, could adversely affect our business, operating results and financial condition.

Risks Related to the Historical Commercialization of Opioids

Governmental investigations and inquiries, regulatory actions and lawsuits brought against us by government agencies and private parties with respect to our historical commercialization of opioids could adversely affect our business, financial condition and results of operations.

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state and local regulatory and governmental agencies, as well as increased legal action brought by state and local governmental entities and private parties. For example, we are currently named as a defendant, along with numerous other manufacturers and distributors of opioid drugs, in multiple lawsuits alleging common-law and statutory causes of action for alleged misleading or otherwise improper marketing and promotion of opioid drugs. Such litigation and related matters are described in “Item 1. Financial Statements – Note 12. Commitments and Contingencies.”

In March 2017, we received a letter from Senator Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information regarding our historical commercialization of opioid products. We voluntarily furnished information responsive to Sen. McCaskill’s request. We have also received subpoenas or civil investigative demands focused on historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various State Attorneys General seeking documents and information regarding our historical sales and marketing of opioid products. In addition, the CDI has issued a subpoena to us seeking information relating to our historical sales and marketing of Lazanda. The CDI subpoena also seeks information on Gralise, a non-opioid product in our portfolio. We have received subpoenas from the DOJ seeking documents and information regarding our historical sales and marketing of opioid products. We also from time to time receive and comply with subpoenas from governmental authorities related to investigations primarily focused on third parties, including healthcare practitioners. We are cooperating with the foregoing governmental investigations and inquiries. These matters are described in “Item 1. Financial Statements – Note 12. Commitments and Contingencies.”

These and other governmental investigations or inquiries, as well as lawsuits, in which we are and may become involved may result in additional claims and lawsuits being brought against us by governmental agencies or private parties. It is not possible at this time to predict either the outcome or the potential financial impact of the opioid-related lawsuits mentioned above or any governmental investigations or inquiries of us or any lawsuits or regulatory responses that may result from such investigations or inquiries or otherwise. It is also not possible at this time to predict the additional expenses related to such ongoing opioid-related litigation and investigations, which may be significant. The initiation of any additional investigation, inquiry or lawsuit relating to us, the costs and expenses associated therewith, or any assertion, claim or finding of wrongdoing by us, could:

adversely affect our business, financial condition and results of operations;

result in reputational harm and reduced market acceptance and demand for our products;

harm our ability and our commercial partner’s ability to market our products;

cause us to incur significant liabilities, costs and expenses; et

cause our senior management to be distracted from execution of our business strategy.


Collegium is subject to pending governmental investigations and inquiries and lawsuits similar to those matters described above. Such proceedings, together with any additional proceedings that may be initiated against Collegium, and any assertion, claim or finding of wrongdoing by Collegium, could adversely affect Collegium’s ability to commercialize NUCYNTA or NUCYNTA ER and in turn adversely affect our business, results of operations and financial condition. Furthermore, these pending investigations, inquiries and lawsuits could negatively affect our ability to raise capital and impair our ability to engage in strategic transactions.

We may incur product liability losses and other litigation liability for which we may be unable to maintain or obtain adequate protection.

We are or may be involved in various legal proceedings, lawsuits and certain government inquiries and investigations, including with respect to, but not limited to, patent infringement, product liability, personal injury, antitrust matters, securities class action lawsuits, breach of contract, Medicare and Medicaid reimbursement claims, opioid-related matters, promotional practices and compliance with laws relating to the manufacture and sale of controlled substances. For example, we, along with other opioid manufacturers and, often, distributors, have been named in lawsuits related to the manufacturing, distribution, marketing and promotion of opioids. In addition, we have also received various subpoenas and requests for information related to the distribution, marketing and sale of our opioid products. Moreover, our primary product liability insurer has sought a declaratory judgment that opioid litigation claims noticed by us are not covered by our policies with such insurer. Such litigation and related matters are described in “Item 1. Financial Statements – Note 12. Commitments and Contingencies.” If any of these legal proceedings, inquiries or investigations were to result in an adverse outcome, the impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

We have obtained product liability insurance for sales of our products and clinical trials currently underway, but:

we may be unable to maintain product liability insurance on acceptable terms;

we may be unable to obtain product liability insurance for future trials;

we may be unable to obtain product liability insurance for future products; ou

our insurance may not provide adequate protection against potential liabilities (including pending and future claims relating to opioid litigation), or may provide no protection at all.

Our inability to obtain or maintain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of our products. Collegium’s inability to obtain or maintain adequate insurance coverage with regard to its commercialization of NUCYNTA and NUCYNTA ER could prevent or inhibit Collegium’s commercialization of NUCYNTA and NUCYNTA ER and in turn adversely affect our business, results of operations and financial condition. Defending a lawsuit could be costly and significantly divert management’s attention from conducting our business. If third parties were to bring a successful product liability or other claims, or series of claims, against us, or Collegium relating to NUCYNTA and NUCYNTA ER, for uninsured liabilities or in excess of our insured liability limits, or Collegium’s insured liability limits with respect to NUCYNTA and NUCYNTA ER, respectively, our business, results of operations and financial condition could be adversely affected.

Risks Related to Our Intellectual Property

We may be unable to protect our intellectual property and may be liable for infringing the intellectual property of others.

Our success will depend in part on our ability to obtain and maintain patent protection for our products and technologies and to preserve our trade secrets. Our policy is to seek to protect our proprietary rights by, among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. We hold issued U.S. patents and have patent applications pending in the U.S. In addition, we are pursuing patent applications relating to our technologies in the U.S. and abroad. We have also applied for patents in numerous foreign countries. Some of those countries have granted our applications and other applications are still pending. Our pending patent applications may lack priority over other applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products. We also rely on trade secrets and proprietary know-how, which are difficult to protect. We seek to protect such information, in part, by entering into confidentiality agreements with employees, consultants, collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know-how. These confidentiality agreements may not be effective in certain cases, due to, among other things, the lack of an adequate remedy for


breach of an agreement or a finding that an agreement is unenforceable. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

Our ability to develop our technologies and to make commercial sales of products using our technologies also depends on not infringing other patents or intellectual property rights. We are not aware of any such intellectual property claims directly against us. The pharmaceutical industry has experienced extensive litigation regarding patents and other intellectual property rights. Patents issued to third parties relating to sustained release drug formulations or particular pharmaceutical compounds could in the future be asserted against us, although we believe that we do not infringe any valid claim of any patents. For example, in February 2018 Purdue sued Collegium for infringement of three patents owned by Purdue that were issued in January 2018 and expire in 2022 arising from Collegium’s commercialization of the NUCYNTA franchise of products. If claims concerning any of our products were to arise and it was determined that these products infringe a third party’s proprietary rights, we or our commercial partners could be subject to substantial damages for past infringement or could be forced to stop or delay activities with respect to any infringing product, unless we or our commercial partner, as applicable, can obtain a license, or our product may need to be redesigned so that it does not infringe upon such third party’s patent rights, which may not be possible or could require substantial funds or time. Such a license may not be available on acceptable terms, or at all. Even if we, our collaborators or our licensors were able to obtain a license, the rights may be nonexclusive, which could give our competitors access to the same intellectual property. In addition, any public announcements related to litigation or interference proceedings initiated or threatened against us, even if such claims are without merit, could cause our stock price to decline.

From time to time, we may become aware of activities by third parties that may infringe our patents. Infringement of our patents by others may reduce our market shares (if a related product is approved) and, consequently, our potential future revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. For instance, we have previously been engaged in ANDA litigation involving NUCYNTA, NUCYNTA ER and NUCYNTA oral solution as well as Gralise and Zipsor. It is possible our issued or licensed patents may not be held valid by a court of competent jurisdiction or the Patent Trial and Appeal Board (PTAB). Whether or not the outcome of litigation or the PTAB proceeding is favorable to us, the litigation and the proceedings may take significant time, may be expensive and may divert management’s attention from other business concerns. We may also be required to participate in derivation proceedings or other post-grant proceedings declared by the U.S. Patent and Trademark Office (USPTO) for the purposes of, respectively, determining the priority of inventions in connection with our patent applications or determining validity of claims in our issued patents. Adverse determinations in litigation or proceedings at the USPTO could adversely affect our business, results of operations and financial condition and could require us to seek licenses which may not be available on commercially reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may be prevented from marketing the affected product.

Risks Related to Our Financial Position

Our failure to generate sufficient cash flow from our business to make payments on our debt would adversely affect our business, financial condition and results of operations.

We have incurred significant indebtedness under the senior secured notes we issued in April 2015 (the Senior Notes) and the convertible notes we issued in September 2014 and August 2019 (collectively, the Convertible Notes). Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the Convertible Notes, the Senior Notes and any additional debt obligations we may incur depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. Further, our results of operations may cause us to fail to comply with the financial covenants contained in the Note Purchase Agreement described in “Item 1. Financial Statements – Note 9. Debt,” which event of default could result in all of our debt becoming immediately due and payable. If we are unable to generate sufficient cash flow or if our results of operations cause us to fail to comply with our financial covenants, we may be required to take one or more actions, including refinancing our debt, significantly reducing expenses, renegotiating our debt covenants, restructuring our debt, selling assets or obtaining additional capital, each of which may be on terms that may be onerous, highly dilutive or disruptive to our business. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on commercially reasonable or acceptable terms, which could result in a default on our obligations, including the Convertible Notes and the Senior Notes.


We may seek to refinance all or a portion of our outstanding indebtedness in the future. Any such refinancing would depend on the capital markets and business and financial conditions at the time, which could affect our ability to obtain attractive terms if or when desired or at all.

In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences to our business. For example, it could:

make it more difficult for us to meet our payment and other obligations under the Convertible Notes, the Senior Notes or our other indebtedness;

result in other events of default under our Convertible Notes, Senior Notes or our other indebtedness, which events of default could result in all of our debt becoming immediately due and payable;

make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

limit our ability to borrow additional amounts for working capital and other general corporate purposes, including funding possible acquisitions of, or investments in, new and complementary businesses, products and technologies which is a key element of our corporate strategy;

subject us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including the Senior Notes;

require the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including working capital, clinical trials, research and development, business development activities, capital expenditures and other general corporate purposes;

prevent us from raising funds necessary to repurchase the Convertible Notes in the event we are required to do so following a “fundamental change,” as specified in the indentures governing the Convertible Notes, to repurchase the Senior Notes in the event we are required to do so following a “major transaction,” as specified in the Note Purchase Agreement, or to settle conversions of the Convertible Notes in cash;

result in dilution to our existing shareholders as a result of the conversion of the Convertible Notes into shares of common stock;

limit our flexibility in planning for, or reacting to, changes in our business and our industry; et

put us at a disadvantage compared to our competitors who have less debt.

Any of these factors could adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.

Our existing capital resources may not be sufficient to fund our future operations or product acquisitions and strategic transactions that we may pursue.

We fund our operations primarily through revenues from product sales and do not have any committed sources of capital. To the extent that our existing capital resources and revenues from ongoing operations are insufficient to fund our future operations, or product acquisitions and strategic transactions that we may pursue, or our litigation-related costs, we will have to raise additional funds through the sale of our equity securities, through additional debt financing, from development and licensing arrangements or from the sale of assets. We may be unable to raise such additional capital on favorable terms, or at all. If we raise additional capital by selling our equity or convertible debt securities, the issuance of such securities could result in dilution of our shareholders’ equity positions.

Acquisition of new and complementary businesses, products and technologies is a key element of our corporate strategy. If we are unable to successfully identify and acquire such businesses, products or technologies, our business growth and prospects will be limited.

Since June 2012, we have acquired NUCYNTA, NUCYNTA ER, CAMBIA, and Zipsor, exclusively in-licensed the right to develop and commercialize cebranopadol, and in-licensed the right to market long-acting cosyntropin. An important element of our business strategy is to actively seek to acquire products or companies and to in-license or seek co-promotion rights to additional products. We cannot be certain that we will be able to successfully identify, pursue and complete any further acquisitions or whether we would be able to successfully integrate or develop any acquired business, product or technology or retain any key employees. If we are unable to enhance and broaden our product offerings, our business and prospects will be limited.


If we engage in strategic transactions that fail to achieve the anticipated results and synergies, our business will suffer.

We may seek to engage in strategic transactions with third parties, such as product or company acquisitions, strategic partnerships, joint ventures, divestitures or business combinations. We may face significant competition in seeking potential strategic partners and transactions, and the negotiation process for acquiring any product or engaging in strategic transactions can be time-consuming and complex. Engaging in strategic transactions, such as our acquisition in 2015 of the rights to NUCYNTA and NUCYNTA ER, our completion in 2018 of the commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, and our acquisition of the right to market long-acting cosyntropin in the U.S. and Canada may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, pose integration challenges and fail to achieve the anticipated results or synergies or distract our management and business, which may harm our business.

As part of an effort to acquire a product or company or to enter into other strategic transactions, we conduct business, legal and financial due diligence with the goal of identifying, evaluating and assessing material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining, evaluating and accurately assessing all such risks and, as a result, might not realize the intended advantages of the transaction. We may also assume liabilities and legal risks in connection with a transaction, including those relating to activities of the seller prior to the consummation of the transaction and contracts that we assume. Failure to realize the expected benefits from acquisitions or strategic transactions that we may consummate, or that we have completed, such as the acquisition in 2015 of the U.S. rights to NUCYNTA and NUCYNTA ER, the commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, and our acquisition of the right to market long-acting cosyntropin in the U.S. and Canada, whether as a result of identified or unidentified risks, integration difficulties, regulatory setbacks, governmental investigations, independent actions of or financial position of our collaborative partners, litigation or other events, could adversely affect our business, results of operations and financial condition.

If we are unable to successfully integrate any business, product or technology we may acquire, our business, financial condition and operating results will suffer.

Integrating any business, product or technology we acquire is expensive, time consuming and can disrupt and adversely affect our ongoing business, including product sales, and distract our management. Our ability to successfully integrate any business, product or technology we acquire depends on a number of factors, including, but not limited to, our ability to:

minimize the disruption and distraction of our management and other employees, including our sales force, in connection with the integration of any acquired business, product or technology;

maintain and increase sales of our existing products;

establish or manage the transition of the manufacture and supply of any acquired product, including the necessary active pharmaceutical ingredients, excipients and components;

identify and add the necessary sales, marketing, manufacturing, regulatory and other related personnel, capabilities and infrastructure that are required to successfully integrate any acquired business, product or technology;

manage the transition and migration of all commercial, financial, legal, clinical, regulatory and other pertinent information relating to any acquired business, product or technology;

comply with legal, regulatory and contractual requirements applicable to any acquired business, product or technology;

obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payers with respect to any acquired product; et

maintain and extend intellectual property protection for any acquired product or technology.

If we are unable to perform the above functions or otherwise effectively integrate any acquired businesses, products or technologies, our business, financial condition and operating results will suffer.

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash, to repurchase the Convertible Notes upon a fundamental change or to repurchase the Senior Notes upon a major transaction put.

Holders of the Convertible Notes will have the right to require us to repurchase all or a portion of their Convertible Notes upon the occurrence of certain events, including events deemed to be a “fundamental change,” at a repurchase price


equal to 100% of the principal amount of the outstanding Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted.

Furthermore, holders of the Senior Notes will have the right to require us to repurchase all of their Senior Notes upon the occurrence of certain events deemed to be a “major transaction” at a repurchase price equal to: (a) 100% of the principal amount of the outstanding Senior Notes to be repurchased, plus (b) accrued and unpaid interest, if any, plus (c) a prepayment premium, which may be substantial.

However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes or Senior Notes or pay cash with respect to Convertible Notes being converted. In addition, our ability to repurchase or to pay cash upon conversion of the Convertible Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. An event of default under the indentures governing the Convertible Notes, including our failure to repurchase Convertible Notes when required by the indentures governing the Convertible Notes, would constitute a default under the Note Purchase Agreement. In addition, an event of default under the Note Purchase Agreement, including our failure to repurchase Senior Notes when the repurchase is required by the Note Purchase Agreement, would constitute a default under the indentures governing the Convertible Notes. Moreover, the occurrence of a fundamental change under the indentures governing the Convertible Notes or a major transaction under the Note Purchase Agreement could constitute an event of default under either the indentures governing the Convertible Notes or the Note Purchase Agreement, as applicable, and any agreements that may govern any future indebtedness. Following an event of default, if the payment of our outstanding indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The market price of our common stock historically has been volatile. Our results of operations may fluctuate and affect our stock price.

The trading price of our common stock has been, and is likely to continue to be, volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Factors affecting our operating results and that could adversely affect our stock price include:

the degree of commercial success and market acceptance of NUCYNTA and NUCYNTA ER achieved by Collegium;

the degree of commercial success and market acceptance of Gralise, CAMBIA and Zipsor achieved;

the current and future market conditions for short-acting and long-acting opioids;

filings and other regulatory or governmental actions, investigations or proceedings related to our products and product candidate and those of our commercialization and collaborative partners;

the regulatory strategy for long-acting cosyntropin and our ability and our collaborative partner’s ability to successfully develop and execute such strategy;

our and our development partner’s determination if the FDA’s comments in the Complete Response Letter (CRL) for the novel injectable formulation of long-acting cosyntropin can be adequately addressed;

our ability to successfully commercialize long-acting cosyntropin if regulatory approval is obtained;

developments concerning proprietary rights, including patents, infringement allegations, inter party review proceedings and litigation matters;

legal and regulatory developments in the U.S.;


actions taken by industry stakeholders affecting the market for our products;

our ability to generate sufficient cash flow from our business to make payments on our indebtedness;

our and our commercialization and collaborative partners’ compliance or non-compliance with legal and regulatory requirements and with obligations under our collaborative agreements;

our ability to successfully develop and execute our sales and marketing strategies;

our plans to acquire, in-license or co-promote other products, compounds or acquire or combine with other companies, and our degree of success in realizing the intended advantages of, and mitigating any risks associated with, any such transaction;

adverse events related to our products, or product candidates, including recalls;

interruptions of manufacturing or supply, or other manufacture or supply difficulties;

variations in revenues obtained from commercialization and collaborative agreements, including contingent milestone payments, royalties, license fees and other contract revenues, including non-recurring revenues, and the accounting treatment with respect thereto;

adverse events or circumstances related to our peer companies or our industry or the markets for our products;

adoption of new technologies by us or our competitors;

the outcome of opioid-related investigations and litigation;

the outcome and impact of a proxy contest initiated by an activist shareholder;

our compliance with the terms and conditions of the agreements governing our indebtedness;

decisions by collaborative partners to proceed or not to proceed with subsequent phases of a collaboration or program;

our ability to generate additional revenues from our intellectual property rights;

sales of large blocks of our common stock or the dilutive effect of our Convertible Notes; et

variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue, and other financial metrics and non-financial metrics, and how those results are measured, presented and compare to analyst expectations.

As a result of these and other such factors, our stock price may continue to be volatile and investors may be unable to sell their shares at a price equal to, or above, the price paid. Any significant drops in our stock price could give rise to shareholder lawsuits, which are costly and time consuming to defend against and which may adversely affect our ability to raise capital while the suits are pending, even if the suits are ultimately resolved in our favor.

In addition, if the market for pharmaceutical stocks or the stock market in general experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. For example, if one or more securities or industry analysts downgrades our stock or publishes an inaccurate research report about our company, the market price for our common stock would likely decline. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us.

We have incurred operating losses in the past and may incur operating losses in the future.

To date, we have recorded revenues from product sales, license fees, royalties, collaborative research and development arrangements and feasibility studies. In 2017, 2016 and 2015 we incurred net losses of $102.5 million. $88.7 million and $75.7 million, respectively. We may continue to incur operating losses in future years. Any such losses may have an adverse impact on our total assets, shareholders’ equity and working capital.


We have significant amounts of long-lived assets which depend upon future positive cash flows to support the values recorded in our balance sheet. We may have an increased risk of future impairment charges should actual financial results differ materially from our projections.

Our consolidated balance sheet contains significant amounts long-lived assets, including intangible assets representing the product rights which we have acquired over the last few years and property and equipment. We review the carrying value of our long-lived assets when indicators of impairment are present. Conditions that could indicate impairment of long-lived assets include, but are not limited to, a significant adverse change in market conditions, significant competing product launches by our competitors, significant adverse change in the manner in which the long-lived asset is being used, and adverse legal or regulatory outcomes.

In performing our impairment tests, which assess the recoverability of our assets, we utilize our future projections of cash flows. Projections of future cash flows are inherently subjective and reflect assumptions that may or may not ultimately be realized. Significant assumptions utilized in our projections include, but are not limited to, our evaluation of the market opportunity for our products, the current and future competitive landscape and resulting impacts to product pricing, future regulatory actions, planned strategic initiatives and the realization of benefits associated with our existing patents. Given the inherent subjectivity and uncertainty in projections, we could experience significant unfavorable variances in future periods or revise our projections downward. This would result in an increased risk that our long-lived assets may be impaired. If an impairment were recognized, this could have a material adverse effect on our financial condition and results of operations.

Our customer concentration may materially adversely affect our financial condition and results of operations.

We and our commercialization partners sell a significant amount of our products to a limited number of independent wholesale drug distributors. If we, or our commercialization partners, were to lose the business of one or more of these distributors, if any of these distributors failed to fulfill their obligations, if any of these distributors experienced difficulty in paying us or our commercialization partners on a timely basis, or if any of these distributors negotiated lower pricing terms, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. See also “ – We rely on Collegium Pharmaceutical Inc. to commercialize NUCYNTA and NUCYNTA ER and their failure to successfully commercialize these products could have a material adverse effect on our business, financial condition and results of operations.”

Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year, which may cause our stock price to decline.

Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year. We believe this arises primarily as a result of wholesalers’ reductions of inventory of our products in the first quarter and annual changes in health insurance plans that occur at the beginning of the calendar year.

Our wholesalers typically end the calendar year with higher levels of inventory of our products than at the end of the first quarter of the following year. As a result, in such first quarters, net sales are typically lower than would otherwise have been the case as a result of the reduction of product inventory at our wholesalers. Any material reduction by our wholesalers of their inventory of our products in the first quarter of any calendar year as compared to the fourth quarter of the preceding calendar year, could adversely affect our operating results and may cause our stock price to decline.

Many health insurance plans and government programs reset annual limits on deductibles and out-of-pocket costs at the beginning of each calendar year and require participants to pay for substantially all of the costs of medical services and prescription drug products until such deductibles and annual out-of-pocket cost limits are met. In addition, enrollment in high-deductible health insurance plans has increased significantly in recent years. As a result of these factors, patients may delay filling or refilling prescriptions for our products or substitute less expensive generic products until such deductibles and annual out-of-pocket cost limits are met. Any reduction in the demand for our products, including those marketed by our commercialization partners as a result of the foregoing factors or otherwise, could adversely affect our business, operating results and financial condition.

Changes in fair value of contingent consideration assumed as part of our acquisitions could adversely affect our results of operations.

Contingent consideration obligations arise from the Zipsor and CAMBIA acquisitions and relate to the potential future contingent milestone payments and royalties payable under the respective agreements. The contingent consideration is initially recognized at its fair value on the acquisition date and is re-measured to fair value at each reporting date until the contingency


is resolved with changes in fair value recognized in earnings. The estimates of fair values for the contingent consideration contain uncertainties as it involves assumptions about the probability assigned to the potential milestones and royalties being achieved and the discount rate. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period.

The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Notes could have a material effect on our reported financial results.

In May 2008, FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20). Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Convertible Notes is that the equity component is required to be included in the additional paid-in capital within shareholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Convertible Notes. As a result, we have been required to record a greater amount of non-cash interest expense as a result of the accretion of the discounted carrying value of the Convertible Notes to their face amount over the term of the notes. We will report lower net income (or larger net losses) in our financial results because ASC 470-20 requires interest to include both the accretion of the debt discount and the instrument’s non-convertible coupon interest rate, which adversely affects our reported or future financial results and may adversely affect the trading price of our common stock.

In addition, if the Convertible Notes become convertible, we are required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than a long-term liability, which would result in a material reduction of our net working capital. Finally, we use the if-converted method to compute diluted earnings per share with respect to our convertible debt, which could be more dilutive than assuming the debt would be settled in cash.

Any of these factors could cause a decrease in the market price of our common stock.

If we are unable to satisfy regulatory requirements relating to internal controls, our stock price could suffer.

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of the effectiveness of their internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our internal control over financial reporting, include in our annual report the results of the evaluation and have our external auditors also publicly attest to the effectiveness of our internal control over financial reporting.

Our ability to produce accurate financial statements and comply with applicable laws, rules and regulations is largely dependent on our maintenance of internal control and reporting systems, as well as on our ability to attract and retain qualified management and accounting personnel to further develop our internal accounting function and control policies. If we fail to effectively establish and maintain such reporting and accounting systems or fail to attract and retain personnel who are capable of designing and operating such systems, these failures will increase the likelihood that we may be required to restate our financial results to correct errors or that we will become subject to legal and regulatory infractions, which may entail civil litigation and investigations by regulatory agencies including the SEC. In addition, if material weaknesses are found in our internal controls in the future, if we fail to complete future evaluations on time or if our external auditors cannot attest to the effectiveness of our internal control over financial reporting, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price or expose us to litigation or regulatory proceedings, which may be costly or divert management attention.

Our financial results are impacted by management’s assumptions and use of estimates.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities as well as subsequent fair value measurements. Additionally, estimates are used in determining items such as sales discounts and returns, depreciable and amortizable lives, share-based compensation assumptions, fair value of contingent consideration and taxes on income. Although management believes these estimates are based upon reasonable assumptions within the bounds of its knowledge of our business and operations, actual results could differ materially from these estimates.


Risks Related to Share Ownership and Other Stockholder Matters

Our business could be negatively affected as a result of any future proxy fight or the actions of activist shareholders.

On October 17, 2016, we and Starboard Value LP (Starboard) entered into a settlement agreement pursuant to which, among other things, (i) three independent directors appointed by Starboard joined our Board of Directors, (ii) we amended our bylaws to move the window for shareholders director nominations and other shareholder proposals for consideration at the 2017 annual meeting of shareholders to March 15, 2017 through April 15, 2017 and (iii) Starboard agreed to withdraw its request for the Special Meeting scheduled to be held on November 15, 2016. On March 28, 2017, we and Starboard entered into a cooperation and support agreement pursuant to which, among other things, two additional independent directors appointed by Starboard joined our Board of Directors and the parties agreed to certain standstill commitments.

Another proxy contest or related activities with Starboard or other activist shareholders, could adversely affect our business for a number of reasons, including, but not limited to the following:

responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;

perceived uncertainties as to our future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners, customers and others important to our success, any of which could negatively affect our business and our results of operations and financial condition; et

if nominees advanced by activist shareholders are elected or appointed to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans or to realize long-term value from our assets, and this could in turn have an adverse effect on our business and on our results of operations and financial condition.

A proxy contest could also cause our stock price to experience periods of volatility. Further, if a proxy contest results in a change in control of our Board of Directors, such an event could give third parties certain rights under our existing contractual obligations, which could adversely affect our business.

We may be subject to disruptive unsolicited takeover attempts in the future.

We have in the past and may in the future be subject to unsolicited attempts to gain control of our company. Responding to any such attempt would distract management attention away from our business and would require us to incur significant costs. Moreover, any unsolicited takeover attempt may disrupt our business by causing uncertainty among current and potential employees, producers, suppliers, customers and other constituencies important to our success, which could negatively impact our financial results and business initiatives. Other disruptions to our business include potential volatility in our stock price and potential adverse impacts on the timing of, and our ability to consummate, acquisitions of products and companies.

Certain provisions applicable to the Convertible Notes and the Senior Notes could delay or prevent an otherwise beneficial takeover or takeover attempt.

Certain provisions applicable to the Convertible Notes and the indentures governing the Convertible Notes, the Senior Notes and the Note Purchase Agreement governing the Senior Notes, could make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a fundamental change under the indentures for the Convertible Notes or a major transaction under the Note Purchase Agreement, holders of the Convertible Notes or the Senior Notes, as applicable, will have the right to require us to repurchase their notes in cash. In addition, if an acquisition event constitutes a “make-whole fundamental change” under the indentures, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such make-whole fundamental change. In any of these cases, and in other cases, our obligations under the Convertible Notes and the indentures, the Senior Notes and the Note Purchase Agreement, as well as provisions of our organizational documents and other agreements, could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.


We do not intend to pay dividends on our common stock so any returns on shares of our common stock will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangement. Any return to shareholders will therefore be limited to the increase, if any, of our stock price.

Our common stock may be delisted from the Nasdaq Global Select Market if we are unable to maintain compliance with Nasdaq's continued listing standards.

Nasdaq imposes, among other requirements, continued listing standards including minimum bid requirement. The price of our common stock must trade at or above $1.00 to comply with the minimum bid requirement for continued listing on the Nasdaq Global Select Market. If our stock trades at closing bid prices of less than $1.00 for a period of 30 consecutive business days, Nasdaq could send a deficiency notice to us for not remaining in compliance with the continued listing standards. Recently, our common stock has traded at closing bid prices below $1.00. If the closing bid price of our common stock fails to meet Nasdaq’s minimum closing bid price requirement for a period in excess of 30 consecutive days, or if we otherwise fail to meet any other applicable requirements of the Nasdaq Global Select Market and we are unable to regain compliance, Nasdaq may make a determination to delist our common stock. Any delisting of our common stock could adversely affect the market liquidity and market price of our common stock and our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors. Furthermore, the delisting of our common stock would give the holders of the Convertible Notes and the Senior Notes rights to require us to repurchase all or a portion of their notes at the prices set forth in the indentures governing the Convertible Notes and the Note Purchase Agreement governing the Senior Notes. If this were to happen, we may not have sufficient funds to repay such indebtedness.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not sell any equity securities during the period covered by this Quarterly Report that were not registered under the Securities Act, except as previously disclosed in our Current Reports on Le formulaire 8K..


ITEM 5.    OTHER INFORMATION

On August 6, 2019, our Board of Directors approved an amendment (the Amendment) to the amended and restated form of Management Continuity Agreement (the Management Continuity Agreement) previously entered into with certain of the Company’s executive officers. Pursuant to the Amendment subsequently entered into with such executive officers, in the event an executive officer is subject to an involuntary termination within 90 days prior to or 24 months following a change of control, the executive officer is entitled to receive a lump sum severance payment equal to three times (if the officer is the chief executive officer) or one and a half times (if the officer is not the chief executive officer) the base salary and bonus, as applicable, which the officer was receiving immediately prior to the change of control, in addition to three years of medical benefits (if the officer is the chief executive officer) or one and a half years (if the officer is not the chief executive officer). The form of Management Continuity Agreement is otherwise unchanged by the Amendment.

ITEM 6. EXHIBITS

4.1

10.1

10.2

10.3

10.4

31.1

31.2

32.1

32.2

101

Interactive Data Files pursuant to Rule 405 of Regulation S-T

_______________________________________________________

()

Certain portions of this exhibit have been omitted pursuant to the SEC’s rules regarding the redaction of confidential information.

(*)    Furnished herewith


SIGNATURES

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

Date: November 7, 2019

ASSERTIO THERAPEUTICS, INC.

/s/ Arthur J. Higgins

Arthur J. Higgins

President and Chief Executive Officer

/s/ Daniel A. Peisert

Daniel A. Peisert

Senior Vice President and Chief Financial Officer

Exhibit 4.1


ASSERTIO THERAPEUTICS, INC.

et THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A,

as Trustee

Third Supplemental Indenture

dated as of August 13, 2019

to Indenture dated as of September 9, 2014

5.00% Convertible Senior Notes due 2024


TABLE OF CONTENTS

______________________

PAGE

ARTICLE 1
APPLICATION OF SUPPLEMENTAL INDENTURE

Section 1.01

Scope Of This Supplemental Indenture 2

Section 1.02

Effect Of This Supplemental Indenture 2

ARTICLE 2
DEFINITIONS

Section 2.01

Définitions 3

Section 2.02

References to Interest 12

ARTICLE 3
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES

Section 3.01

Designation and Amount 12

Section 3.02

Form of Notes 13

Section 3.03

Date and Denomination of Notes; Payments of Interest and Defaulted Amounts 13

Section 3.04

Execution, Authentication and Delivery of Notes 15

Section 3.05

Exchange and Registration of Transfer of Notes; Depositary 15

Section 3.06

Mutilated, Destroyed, Lost or Stolen Notes 18

Section 3.07

Temporary Notes 19

Section 3.08

Cancellation of Notes Paid, Converted, Etc 19

Section 3.09

CUSIP Numbers 20

Section 3.10

Additional Notes; Repurchases 20


ARTICLE 4
SATISFACTION AND DISCHARGE

Section 4.01

Satisfaction and Discharge 20

ARTICLE 5
PARTICULAR COVENANTS OF THE COMPANY

Section 5.01

Payment of Principal and Interest 21

Section 5.02

Maintenance of Office or Agency 21

Section 5.03

Appointments to Fill Vacancies in Trustee’s Office 21

Section 5.04

Provisions as to Paying Agent 21

Section 5.05

Existence 23

Section 5.06

Annual Reports 23

Section 5.07

Stay, Extension and Usury Laws 23

Section 5.08

Compliance Certificate; Statements as to Defaults 23

Section 5.09

Further Instruments and Acts 24

Section 5.10

Additional Amounts 24

ARTICLE 6
DEFAULTS AND REMEDIES

Section 6.01

Events of Default 27

Section 6.02

Acceleration; Rescission and Annulment 28

Section 6.03

Additional Interest 29

Section 6.04

Payments of Notes on Default; Suit Therefor 30

Section 6.05

Application of Monies Collected by Trustee 31

Section 6.06

Proceedings by Holders 32


Section 6.07

Proceedings by Trustee 33

Section 6.08

Remedies Cumulative and Continuing 33

Section 6.09

Direction of Proceedings and Waiver of Defaults by Majority of Holders 33

Section 6.10

Notice of Defaults 34

Section 6.11

Undertaking to Pay Costs 34

ARTICLE 7
CONCERNING THE TRUSTEE

Section 7.01

Duties and Responsibilities of Trustee 35

Section 7.02

Reliance on Documents, Opinions, Etc 36

Section 7.03

No Responsibility for Recitals, Etc 38

Section 7.04

Trustee, Paying Agents, Conversion Agents, or Note Registrar May Own Notes 38

Section 7.05

Monies and Shares of Common Stock to Be Held in Trust 38

Section 7.06

Compensation and Expenses of Trustee 38

Section 7.07

Officers’ Certificate as Evidence 39

Section 7.08

Eligibility of Trustee 39

Section 7.09

Resignation or Removal of Trustee 40

Section 7.10

Acceptance by Successor Trustee 41

Section 7.11

Succession by Merger, Etc 41

Section 7.12

Trustee’s Application for Instructions from the Company 42

ARTICLE 8
CONCERNING THE HOLDERS

Section 8.01

Action by Holders 42


Section 8.02

Proof of Execution by Holders 43

Section 8.03

Who Are Deemed Absolute Owners 43

Section 8.04

Company-Owned Notes Disregarded 43

Section 8.05

Revocation of Consents; Future Holders Bound 44

ARTICLE 9
SUPPLEMENTAL INDENTURES

Section 9.01

Supplemental Indentures Without Consent of Holders 44

Section 9.02

Supplemental Indentures with Consent of Holders 45

Section 9.03

Effect of Supplemental Indentures 46

Section 9.04

Notation on Notes 46

Section 9.05

Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee 46

ARTICLE 10
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

Section 10.01

Company May Consolidate, Etc. on Certain Terms 47

Section 10.02

Successor Corporation to Be Substituted 47

Section 10.03

Opinion of Counsel to Be Given to Trustee 48

ARTICLE 11
CONVERSION OF NOTES

Section 11.01

Conversion Privilege 48

Section 11.02

Conversion Procedure; Settlement Upon Conversion 48

Section 11.03

Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-Whole Fundamental Changes 54

Section 11.04

Adjustment of Conversion Rate 56


Section 11.05

Adjustments of Prices 65

Section 11.06

Shares to Be Fully Paid 65

Section 11.07

Effect of Recapitalizations, Reclassifications and Changes of the Common Stock 65

Section 11.08

Certain Covenants 67

Section 11.09

Responsibility of Trustee 67

Section 11.10

Notice to Holders Prior to Certain Actions 68

Section 11.11

Shareholder Rights Plans 69

Section 11.12

Limitation on Conversion. 69

ARTICLE 12
REPURCHASE OF NOTES AT OPTION OF HOLDERS

Section 12.01

Intentionally Omitted 70

Section 12.02

Repurchase at Option of Holders Upon a Fundamental Change 70

Section 12.03

Withdrawal of Fundamental Change Repurchase Notice 72

Section 12.04

Deposit of Fundamental Change Repurchase Price 73

Section 12.05

Covenant to Comply with Applicable Laws Upon Repurchase of Notes 74

ARTICLE 13
OPTIONAL REDEMPTION

Section 13.01

Optional Redemption 74

Section 13.02

Notice of Optional Redemption; Selection of Notes 74

Section 13.03

Payment of Notes Called for Redemption 75

Section 13.04

Restrictions on Redemption 76

ARTICLE 14
MISCELLANEOUS PROVISIONS


Section 14.01

Governing Law; Jurisdiction 76

Section 14.02

Legal Holidays 76

Section 14.03

No Security Interest Created 77

Section 14.04

Benefits of Indenture 77

Section 14.05

Table of Contents, Headings, Etc 77

Section 14.06

Authenticating Agent 77

Section 14.07

Supplemental Indenture May be Executed in Counterparts 78

Section 14.08

Severability 78

Section 14.09

Waiver of Jury Trial 78

Section 14.10

Calculations 78

Section 14.11

Ratification Of Base Indenture 79

Section 14.12

Trustee Disclaimer 79

EXPOSER

Exhibit A    Form of Note    A-1


THIRD SUPPLEMENTAL INDENTURE, dated as of August 13, 2019 (this “Supplemental Indenture”), between ASSERTIO THERAPEUTICS, INC., a Delaware corporation (the “Company”, as more fully set forth in Section 2.01), and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a New York banking association, as trustee (the “Trustee,” as more fully set forth in Section 2.01), supplementing the Indenture relating to “Senior Debt Securities” dated as of September 9, 2014, between the Company and the Trustee (the “Base Indenture” and, as amended and supplemented by this Supplemental Indenture, and as it may be further amended or supplemented from time to time with respect to the Notes, the “Indenture”).

W I T N E S S E T H:

WHEREAS, the Company executed and delivered the Base Indenture to the Trustee to provide, among other things, for the issuance, from time to time, of the Company’s Securities, in an unlimited aggregate principal amount, in one or more series to be established by the Company under, and authenticated and delivered as provided in, the Base Indenture;

WHEREAS, Section 2.1 of the Base Indenture provides for the Company to issue Securities thereunder in the form and on the terms set forth in one or more Board Resolutions or in one or more indentures supplemental thereto;

WHEREAS, Sections 9.1(f) and (g) of the Base Indenture provide that the Company and the Trustee may enter into indentures supplemental to the Base Indenture, without the consent of any Holders of Securities, to establish the form and terms and conditions of the Securities of any series as provided in Section 2.1 of the Base Indenture and to make any change that does not affect the rights of any Holder in any material respect;

WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 5.00% Convertible Senior Notes due 2024 (the “Notes”), initially in an aggregate principal amount not to exceed $200,000,000, and in order to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Supplemental Indenture;

WHEREAS, the Form of Note, the certificate of authentication to be borne by each Note, the Form of Notice of Conversion, the Form of Fundamental Change Repurchase Notice and the Form of Assignment and Transfer to be borne by the Notes are to be substantially in the forms hereinafter provided;

WHEREAS, the amendments contained herein shall apply only to the Notes as provided in this Supplemental Indenture;

WHEREAS, the conditions set forth in the Base Indenture for the execution and delivery of this Supplemental Indenture have been complied with; et

WHEREAS, all acts and things necessary to make the Notes, when executed by the Company, and authenticated and delivered by the Trustee or a duly authorized authenticating


agent, as in this Supplemental Indenture provided, the valid, binding and legal obligations of the Company, and this Supplemental Indenture a valid agreement according to its terms, have been done and performed, and the execution of this Supplemental Indenture and the issuance hereunder of the Notes have in all respects been duly authorized.

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the Holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective Holders from time to time of the Notes (except as otherwise provided below), as follows:

Article 1
APPLICATION OF SUPPLEMENTAL INDENTURE

Section 1.01 Scope Of This Supplemental Indenture. Notwithstanding any other provision of this Supplemental Indenture, the provisions of this Supplemental Indenture, including as provided in Section 1.02 below, are expressly and solely for the benefit of the Holders of the Notes and shall not apply to any other series of Securities that may be issued hereafter under the Base Indenture. The Notes constitute a series of Securities (as defined in the Base Indenture) as provided in Section 2.1 of the Base Indenture. Unless otherwise expressly specified, references in this Supplemental Indenture to specific Article numbers or Section numbers refer to Articles and Sections contained in this Supplemental Indenture, and not the Base Indenture or any other document.

Section 1.02 Effect Of This Supplemental Indenture.

With respect to the Notes only, the Base Indenture shall be supplemented and amended pursuant to Section 9.1 thereof to establish the form and terms of the Notes as set forth in this Supplemental Indenture, including as follows:

(a) Issue, Description, Terms, Execution, Registration and Exchange of Securities. The provisions of Article II of the Base Indenture are amended and restated in their entirety as set forth in Article 3 of this Supplemental Indenture.

(b) Redemption of Securities and Sinking Fund Provisions. The provisions of Article III of the Base Indenture shall not apply to the Notes, and Article 13 shall apply in lieu thereof.

(c) Covenants. The provisions of Article IV of the Base Indenture are amended and restated in their entirety as set forth in Article 5 of this Supplemental Indenture.

(d) Remedies of the Trustee and Securityholders on Event of Default. The provisions of Article VI of the Base Indenture are amended and restated in their entirety as set forth in Article 6 of this Supplemental Indenture.


(e) Concerning the Trustee. The provisions of Article VII of the Base Indenture are amended and restated in their entirety as set forth in Article 7 of this Supplemental Indenture.

(f) Concerning the Securityholders. The provisions of Article VIII of the Base Indenture are amended and restated in their entirety as set forth in Article 8 of this Supplemental Indenture.

(g) Supplemental Indentures. The provisions of Article IX of the Base Indenture are amended and restated in their entirety as set forth in Article 9 of this Supplemental Indenture.

(h) Successor Entity. The provisions of Article X of the Base Indenture are amended and restated in their entirety as set forth in Article 10 of this Supplemental Indenture.

(i) Satisfaction and Discharge. The provisions of Article XI of the Base Indenture are amended and restated in their entirety as set forth in Article 4 of this Supplemental Indenture.

(j) Reports by the Company. The provisions of Section 5.3 of the Base Indenture are amended and restated in their entirety as set forth in Section 5.06 of this Supplemental Indenture.

(k) Compliance Certificates. The provisions of Section 13.12 of the Base Indenture are amended and restated in their entirety as set forth in Section 5.08 of this Supplemental Indenture.

(l) Payments on Business Days. The provisions of Section 13.8 of the Base Indenture are amended and restated in their entirety as set forth in Section 14.02 of this Supplemental Indenture.

ARTICLE 2
DEFINITIONS

Section 2.01 Définitions. The terms defined in this Section 2.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Supplemental Indenture and the Indenture shall have the respective meanings specified in this Section 2.01 and, to the extent applicable, supersede the definitions thereof in the Base Indenture. All words, terms and phrases defined in the Base Indenture (and not otherwise defined in this Supplemental Indenture) shall have the meanings as in the Base Indenture. The words “herein,” “hereof” and “hereunder” and other words of similar import refer to the Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article 2 include the plural as well as the singular.

"Additional Amounts” shall have the meaning specified in Section 5.10(a).

"Additional Interest” means all amounts, if any, payable pursuant to Section 6.03.

"Additional Shares” shall have the meaning specified in Section 11.03(a).


"Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

"Base Indenture” has the meaning specified in the first paragraph of this Supplemental Indenture.

"Business Day” means, with respect to any Note, any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.

"Capital Stock” means, for any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that entity.

"Cash Settlement” shall have the meaning specified in Section 11.02(a).

"Clause A Distribution” shall have the meaning specified in Section 11.04(c).

"Clause B Distribution” shall have the meaning specified in Section 11.04(c).

"Clause C Distribution” shall have the meaning specified in Section 11.04(c).

"close of business” means 5:00 p.m. (New York City time).

"Combination Settlement” shall have the meaning specified in Section 11.02(a).

"Commission” means the U.S. Securities and Exchange Commission.

"Common Equity” of any Person means Capital Stock of such Person that is generally entitled (a) to vote in the election of directors of such Person or (b) if such Person is not a corporation, to vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person.

"Common Stock” means the common stock of the Company, $0.0001 par value per share, at the date of this Supplemental Indenture, subject to Section 11.07.

"Company” shall have the meaning specified in the first paragraph of this Supplemental Indenture, and subject to the provisions of Article 10, shall include its successors and assigns.

"Conversion Agent” shall have the meaning specified in Section 5.02.

"Conversion Date” shall have the meaning specified in Section 11.02(c).


"Conversion Obligation” shall have the meaning specified in Section 11.01.

"Conversion Price” means as of any time, $1,000, divided by the Conversion Rate as of such time.

"Conversion Rate” shall have the meaning specified in Section 11.01.

"Custodian” means the Trustee, as custodian for The Depository Trust Company, with respect to the Global Notes, or any successor entity thereto.

"Daily Conversion Value” means, for each of the 40 consecutive Trading Days during the Observation Period, 2.5% of the product of (a) the Conversion Rate on such Trading Day and (b) the Daily VWAP for such Trading Day.

"Daily Measurement Value” means the Specified Dollar Amount (if any), divided by 40.

"Daily Settlement Amount,” for each of the 40 consecutive Trading Days during the Observation Period, shall consist of:

(a) cash in an amount equal to the lesser of (i) the Daily Measurement Value and (ii) the Daily Conversion Value on such Trading Day; et

(b) if the Daily Conversion Value on such Trading Day exceeds the Daily Measurement Value, a number of shares of Common Stock equal to (i) the difference between the Daily Conversion Value and the Daily Measurement Value, divided by (ii) the Daily VWAP for such Trading Day.

"Daily VWAP” means the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “ASRT AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day (or if such volume-weighted average price is unavailable, the market value of one share of the Common Stock on such Trading Day determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by the Company). The “Daily VWAP” shall be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.

"Defaulted Amounts” means any amounts on any Note (including, without limitation, the Redemption Price, the Fundamental Change Repurchase Price, principal and interest) that are payable but are not punctually paid or duly provided for.

"Depositary” means, with respect to each Global Note, the Person specified in Section 3.05(c) as the Depositary with respect to such Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of the Indenture, and thereafter, “Depositary” shall mean or include such successor.

"Distributed Property” shall have the meaning specified in Section 11.04(c).


"Effective Date” shall have the meaning specified in Section 11.03(c), except that, as used in Section 11.04 and Section 11.05, “Effective Date” means the first date on which shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, reflecting the relevant share split or share combination, as applicable.

"Event of Default” shall have the meaning specified in Section 6.01.

"Ex-Dividend Date” means the first date on which shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Company or, if applicable, from the seller of Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.

"Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"Form of Assignment and Transfer” means the “Form of Assignment and Transfer” attached as Attachment 3 to the Form of Note attached hereto as Exhibit A.

"Form of Fundamental Change Repurchase Notice” means the “Form of Fundamental Change Repurchase Notice” attached as Attachment 2 to the Form of Note attached hereto as Exhibit A.

"Form of Note” means the “Form of Note” attached hereto as Exhibit A.

"Form of Notice of Conversion” means the “Form of Notice of Conversion” attached as Attachment 1 to the Form of Note attached hereto as Exhibit A.

"Fundamental Change” shall be deemed to have occurred at the time after the Notes are originally issued if any of the following occurs:

(a) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than the Company, its Subsidiaries and the employee benefit plans of the Company and its Subsidiaries, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the Company’s Common Equity representing more than 50% of the voting power of the Company’s Common Equity;

(b) the consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination) as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities, other property or assets; (B) any share exchange, consolidation or merger of the Company pursuant to which the Common Stock will be converted into cash, securities or other property or assets; or (C) any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets


of the Company and its Subsidiaries, taken as a whole, to any Person other than one of the Company’s Subsidiaries; provided, however, that a transaction described in clause (B) in which the holders of all classes of the Company’s Common Equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially the same proportions as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant to this clause (b);

(c) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; ou

(d) the Common Stock (or other common stock underlying the Notes) ceases to be listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or any of their respective successors);

provided, however, that a transaction or transactions described in clause (b) above shall not constitute a Fundamental Change, if at least 90% of the consideration received or to be received by the common shareholders of the Company, excluding cash payments for fractional shares, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions the Notes become convertible into such consideration, excluding cash payments for fractional shares (subject to the provisions of Section 11.02(a)); provided, further, that, for the purposes of this definition, any transaction or event described in both clause (a) and in clause (b)(B) above (without regard to the proviso in clause (b)) will be deemed to occur solely pursuant to clause (b) above (subject to such proviso).

"Fundamental Change Company Notice” shall have the meaning specified in Section 12.02(c).

"Fundamental Change Repurchase Date” shall have the meaning specified in Section 12.02(a).

"Fundamental Change Repurchase Notice” shall have the meaning specified in Section 12.02(b)(i).

"Fundamental Change Repurchase Price” shall have the meaning specified in Section 12.02(a).

"given,” with respect to any notice to be given to a Holder pursuant to the Indenture, shall mean notice (x) given to the Depositary (or its designee) pursuant to the standing instructions from the Depositary or its designee, including by electronic mail in accordance with accepted practices or procedures at the Depositary (in the case of a Global Note) or (y) mailed to such Holder by first class mail, postage prepaid, at its address as it appears on the Note Register,


in each case in accordance with Section 13.4 of the Base Indenture. Notice so “given” shall be deemed to include any notice to be “mailed” or “delivered,” including by Electronic Means, as applicable, under the Indenture.

"Global Note” shall have the meaning specified in Section 3.05(b). Each Global Note shall be a Global Security for purposes of the Indenture.

"Holder,” as applied to any Note, or other similar terms (but excluding the term “beneficial holder”), means any Person in whose name at the time a particular Note is registered on the Note Register. “Holder” shall supersede the definitions of “Securityholder,” “holder of Securities” or “registered holder” in the Base Indenture.

"Indenture” has the meaning specified in the first paragraph of this Supplemental Indenture.

"Interest Make-Whole Amount” means in respect of any conversion of the Notes “in connection with” an Optional Redemption, at the applicable Conversion Date, the amount at such Conversion Date of all remaining required interest payments due on each $1,000 principal amount of the Notes being converted through and including the Maturity Date (excluding accrued but unpaid interest to the applicable Conversion Date).

"Interest Payment Date” means each February 15 and August 15 of each year, beginning on February 15, 2020.

"Last Reported Sale Price” of the Common Stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is traded. If the Common Stock is not listed for trading on a U.S. national or regional securities exchange on the relevant date, the “Last Reported Sale Price” shall be the last quoted bid price for the Common Stock in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If the Common Stock is not so quoted, the “Last Reported Sale Price” shall be the average of the mid-point of the last bid and ask prices for the Common Stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by the Company for this purpose.

"Make-Whole Fundamental Change” means any transaction or event that constitutes a Fundamental Change (as defined above and determined after giving effect to any exceptions to or exclusions from such definition, but without regard to the proviso in clause (b) of the definition thereof).

"Market Disruption Event” means, for the purposes of determining amounts due upon conversion (a) a failure by the primary U.S. national or regional securities exchange or market on which the Common Stock is listed or admitted for trading to open for trading during its regular trading session or (b) the occurrence or existence prior to 1:00 p.m., New York City time, on any


Scheduled Trading Day for the Common Stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Common Stock or in any options contracts or futures contracts relating to the Common Stock.

"Maturity Date” means August 15, 2024.

"Merger Event” shall have the meaning specified in Section 11.07(a).

"Note” or “Notes” shall have the meaning specified in the fourth paragraph of the recitals of this Supplemental Indenture.

"Note Register” shall have the meaning specified in Section 3.05(a).

"Note Registrar” shall have the meaning specified in Section 3.05(a).

"Notice of Conversion” shall have the meaning specified in Section 11.02(b).

"Observation Period” with respect to any Note surrendered for conversion means: (i) subject to clause (ii), if the relevant Conversion Date occurs prior to February 15, 2024, the 40 consecutive Trading Day period beginning on, and including, the second Trading Day immediately succeeding such Conversion Date; (ii) if the relevant Conversion Date occurs on or after the date of the Company’s issuance of a Redemption Notice with respect to the Notes pursuant to Section 13.02 and prior to the relevant Redemption Date, the 40 consecutive Trading Days beginning on, and including, the 42nd Scheduled Trading Day immediately preceding such Redemption Date; and (iii) if the relevant Conversion Date occurs on or after February 15, 2024, the 40 consecutive Trading Days beginning on, and including, the 42nd Scheduled Trading Day immediately preceding the Maturity Date.

"Officer” means, with respect to the Company, the President, the Chief Executive Officer, the Treasurer, the Secretary, any Executive or Senior Vice President or any Vice President (whether or not designated by a number or numbers or word or words added before or after the title “Vice President”).

"Officers’ Certificate,” when used with respect to the Company, means a certificate that is delivered to the Trustee and that is signed by (a) two Officers of the Company or (b) one Officer of the Company and one of the Treasurer, any Assistant Treasurer, the Secretary, any Assistant Secretary or the Controller of the Company. Each such certificate shall include the statements provided for in Section 13.7 of the Base Indenture if and to the extent required by the provisions of such Section or otherwise required by the Indenture. One of the Officers giving an Officers’ Certificate pursuant to Section 5.08 shall be the principal executive, financial or accounting officer of the Company.

"open of business” means 9:00 a.m. (New York City time).


"Opinion of Counsel” means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel acceptable to the Trustee, that is delivered to the Trustee. Each such opinion shall include the statements provided for in Section 13.7 of the Base Indenture if and to the extent required by the provisions of such Section or otherwise required by the Indenture.

"Optional Redemption” shall have the meaning specified in Section 13.01.

"outstanding,” when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under the Indenture, except:

(a) Notes theretofore canceled by the Trustee or accepted by the Trustee for cancellation;

(b) Notes, or portions thereof, that have become due and payable and in respect of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent);

(c) Notes that have been paid pursuant to Section 3.06 or Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 3.06 unless proof satisfactory to the Trustee is presented that any such Notes are held by protected purchasers in due course;

(d) Notes converted pursuant to Article 11 and required to be cancelled pursuant to Section 3.08; et

(e) Notes repurchased by the Company pursuant to the penultimate sentence of Section 3.10. This definition of “outstanding” shall supersede the definition of “Outstanding” in the Base Indenture. "Paying Agent” shall have the meaning specified in Section 5.02.

"Physical Notes” means permanent certificated Notes in registered form issued in denominations of $1,000 principal amount and multiples thereof. All references in the Base Indenture to “Definitive Notes” or “Definitive Securities” shall be deemed replaced by “Physical Securities” for purposes of the Indenture.

"Physical Settlement” shall have the meaning specified in Section 11.02(a).

"Predecessor Note” of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.06 in lieu of or in exchange for a mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note that it replaces. All references in the Base Indenture to


“Predecessor Security” shall be deemed replaced by “Predecessor Note” for purposes of the Indenture.

"Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which the Common Stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of the Common Stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors, by statute, by contract or otherwise).

"Redemption Date” shall have the meaning specified in Section 13.02.

"Redemption Notice” shall have the meaning specified in Section 13.02.

"Redemption Price” means, for any Notes to be redeemed pursuant to Section 13.01, 100% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date (unless the Redemption Date falls after a Regular Record Date but on or prior to the immediately succeeding Interest Payment Date, in which case interest accrued to the Interest Payment Date will be paid to Holders of record of such Notes on such Regular Record Date, and the Redemption Price will be equal to 100% of the principal amount of such Notes).

"Reference Property” shall have the meaning specified in Section 11.07(a).

"Regular Record Date,” with respect to any Interest Payment Date, means the February 1 or August 1 (whether or not such day is a Business Day) immediately preceding the applicable February 15 or August 15 Interest Payment Date, respectively. This definition shall supersede the definition of “regular record date” in the Base Indenture.

"Scheduled Trading Day” means a day that is scheduled to be a Trading Day on the principal U.S. national or regional securities exchange or market on which the Common Stock is listed or admitted for trading. If the Common Stock is not so listed or admitted for trading, “Scheduled Trading Day” means a Business Day.

"Securities Act” means the Securities Act of 193