# Collegium Pharmaceutical, Inc: Form 10-Q for the period ended Mar 31, 2022 - Company: [Collegium Pharmaceutical, Inc](/companies/coll.md) (CIK 1267565) - Form: 10-Q - Filed: 2022-05-10 - Accepted by EDGAR: May 10, 2022, 16:04 ET - Period: 2022-03-31 - Accession: 0001558370-22-008090 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1267565/000155837022008090/coll-20220331x10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1267565/000155837022008090/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2022-03-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2022-01-01 to 2022-03-31 | $83.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $35.3m | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2022-01-01 to 2022-03-31 | $48.5m | us-gaap:GrossProfit | | Research and development | 3 months, 2022-01-01 to 2022-03-31 | $4.0m | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 3 months, 2022-01-01 to 2022-03-31 | $54.5m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$10.0m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $5.8m | us-gaap:InterestExpense | | Income tax | 3 months, 2022-01-01 to 2022-03-31 | −$2.8m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2022-01-01 to 2022-03-31 | −$13.1m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.39 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.39 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 33,673,912 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$25.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $108.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2022-03-31 | $106.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2022-03-31 | $363.6m | us-gaap:AssetsCurrent | | Total assets | at 2022-03-31 | $1.25bn | us-gaap:Assets | | Current liabilities | at 2022-03-31 | $373.6m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2022-03-31 | $1.05bn | us-gaap:Liabilities | | Shareholders' equity | at 2022-03-31 | $196.1m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 31,646 characters. *You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and in conjunction with management’s discussion and analysis and our audited consolidated financial statements included in our Annual Report. The following discussion contains forward-looking statements that involve risks uncertainties and assumptions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of many factors. We discuss factors that we believe* *could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those set forth under “Forward-looking Statements” and “Risk Factors”, as revised and supplemented by those risks described from time to time in other reports which we file with the SEC.* ### OVERVIEW We are building a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. Our portfolio includes Xtampza ER, the Nucynta Products, Belbuca, Symproic, and Elyxyb. Xtampza ER is an abuse-deterrent, extended-release, oral formulation of oxycodone that was approved by the FDA in April 2016 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. We commercially launched Xtampza ER in June 2016. The Nucynta Products are extended-release (“ER”) and immediate-release (“IR”) formulations of tapentadol. Nucynta ER 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 in adults, and for which alternate treatment options are inadequate. Nucynta IR is indicated for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate in adults. We began shipping and recognizing product sales on the Nucynta Products in January 2018 and began marketing the Nucynta Products in February 2018. On March 22, 2022, we acquired BDSI, a specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions, pursuant to the Merger Agreement. Upon closing, we acquired the Belbuca, Symproic, and Elyxyb products. We began shipping and recognizing product sales related to Belbuca, Symproic, and Elyxyb in March 2022. Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. Symproic was approved by the FDA in March 2017 for the treatment of OIC in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. Elyxyb was approved by the FDA in May 2020 for the acute treatment of migraine with or without aura in adults. We believe the acquisition of Belbuca, Symproic, and Elyxyb strategically aligns with our mission to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people suffering from serious medical conditions. We are promoting our pain portfolio (Xtampza ER, the Nucynta Products, Belbuca, and Symproic) to approximately 9,000 health care professionals who write approximately 62% of the branded extended-release oral opioid prescriptions in the United States with a sales team of approximately 100 sales representatives and managers. Additionally, we are currently launching Elyxyb with a sales team of 29 sales representatives and managers promoting to approximately 3,500 headache specialists and thought leaders within key markets. ### Outlook We were historically not profitable and incurred net losses in each year since inception until 2020. Substantially all our net losses resulted from costs incurred in connection with selling, general and administrative costs associated with our operations and research and development programs, and we expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution, selling and reimbursement activities. The BDSI Acquisition diversifies and expands our business by adding Belbuca and Symproic to our highly differentiated pain portfolio, and Elyxyb, as a new product launch opportunity that provides entry into neurology. We expect the addition of these products to further strengthen our financial position through increased revenue scale, immediate and significant earnings accretion, and accelerated cash flow generation, driven by synergies of merging operations. While we incurred significant transaction costs and other acquisition related expenses during the period ended March 31, 2022 to complete the BDSI Acquisition and to integrate BDSI’s operations, we expect acquisition related expenses to decrease significantly throughout the remainder of 2022 and expect significant synergies to be reflected in the results of our operations for the remainder of 2022. In addition, we expect the step-up basis in inventory to impact our results of operations until all acquired inventory is sold, which we expect to occur no later than one year after the Acquisition Date. As of the date of the filing of this Quarterly Report on Form 10-Q, we expect the COVID-19 pandemic and actions taken to contain it to continue to impact our revenue. Notwithstanding the lifting of COVID-19 restrictions in many jurisdictions, and amidst continuing public health concerns relating to the spread of COVID-19, weekly pain patient office visits continue to be depressed compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products. We believe that the disruptions caused by COVID-19 will continue and there remains substantial uncertainty as to when such disruptions will cease. ### CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report. Changes in our critical accounting policies with respect to our Annual Report include business combination accounting and valuation of acquired assets, including goodwill and intangible assets, as described below. ### Business Combination Accounting and Valuation of Acquired Assets We completed the BDSI Acquisition on March 22, 2022, which was accounted for as a business combination. To determine whether the acquisition should be accounted for as a business combination or as an asset acquisition, we made certain judgments regarding whether the acquired set of activities and assets met the definition of a business. Judgment is required in assessing whether the acquired processes or activities, along with their inputs, would be substantive to constitute a business, as defined by U.S. GAAP. The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. The purchase price allocation is a critical accounting estimate because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions based on non-observable inputs. An income approach, which generally relies upon projected cash flow models, is used in estimating the fair value of the acquired intangible assets. These cash flow projections are based on management's estimates of economic and market conditions including the estimated future cash flows from revenues of acquired assets; the timing and projection of costs and expenses, discount rates; and tax rates. While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed, if based on facts and circumstances existing at the acquisition date, are recorded on a retroactive basis as of the acquisition date, with the corresponding offset to Goodwill. Any adjustments not based on facts and circumstances existing at the acquisition date, or if subsequent to the conclusion of the measurement period, will be recorded to our consolidated statements of operations. ### RESULTS OF OPERATIONS *(in thousands)* | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ ​ | ​ ​ 2021 | | --- | --- | --- | --- | | Product revenues, net | $83,751 | | $87,721 | | Cost of product revenues | ​ ​ | ​ | ​ ​ | | Cost of product revenues (excluding intangible asset amortization) | ​ 16,332 | ​ | ​ 15,328 | | Intangible asset amortization | ​ 18,923 | ​ | ​ 16,795 | | Total cost of products revenues | ​ 35,255 | ​ | ​ 32,123 | | Gross profit | ​ 48,496 | ​ | ​ 55,598 | | Operating expenses | ​ ​ | ​ | ​ ​ | | Research and development | ​ 3,983 | ​ | ​ 2,930 | | Selling, general and administrative | 54,528 | ​ | 31,476 | | Total operating expenses | 58,511 | ​ | 34,406 | | (Loss) income from operations | (10,015) | ​ | 21,192 | | Interest expense | (5,831) | ​ | (5,721) | | Interest income | ​ 4 | ​ | 3 | | (Loss) income before income taxes | ​ (15,842) | ​ | ​ 15,474 | | (Benefit from) provision for income taxes | ​ (2,773) | ​ | ​ (188) | | Net (loss) income | $(13,069) | ​ | $15,662 | ### Comparison of the three months ended March 31, 2022 and March 31, 2021 #### Product revenues, net Product revenues, net were $83.8 million for the three months ended March 31, 2022 (the “2022 Quarter”), compared to $87.7 million for the three months ended March 31, 2021 (the “2021 Quarter”). The $3.9 million decrease was related to decreases in revenue for Xtampza ER of $3.9 million and a decrease in revenue for the Nucynta Products of $3.6 million, partially offset by an increase in revenue for Belbuca , Symproic, and Elyxyb totaling $3.6 million, as these products were acquired in the 2022 Quarter as a result of the BDSI Acquisition. The decrease in net product revenues for Xtampza ER of $3.9 million is primarily due to a decrease in sales volume, higher provisions for returns, and higher gross-to-net adjustments primarily related to rebates, partially offset by an increase in gross price. The decrease in net product revenues for the Nucynta Products of $3.6 million is primarily due to higher provisions for returns and higher gross-to-net adjustments primarily related to rebates. The increase in net product revenues for Belbuca of $3.3 million, Symproic of $300,000, and Elyxyb of less than $100,000 was due to net product revenues attributable to the period from the Acquisition Date through March 31, 2022, which were acquired in the 2022 Quarter as a result of the BDSI Acquisition. #### Cost of product revenues Cost of product revenues (excluding intangible asset amortization) was $16.3 million for the 2022 Quarter, compared to $15.3 million for the 2021 Quarter. The $1.0 million increase was primarily related to recognition of the step-up basis in inventory acquired from the BDSI Acquisition to fair value of $63.1 million, of which $603,000 was recognized as cost of product revenues in the 2022 Quarter, combined with costs incurred for shipments of Belbuca and Symproic following the Acquisition Date. Intangible asset amortization was $18.9 million for the 2022 Quarter, compared to $16.8 million for the 2021 Quarter. The $2.1 million increase in intangible asset amortization was due to the BDSI Acquisition, in which $445.0 million of consideration was allocated to our acquired intangible assets, Belbuca, Symproic, and Elyxyb. These intangible assets are being amortized on a straight-line basis over the respective estimated useful lives. #### Operating Expenses Research and development expenses were $4.0 million for the 2022 Quarter, compared to $2.9 million for the 2021 Quarter. The $1.1 million increase was primarily due to severance costs and benefits related to the BDSI acquisition. The remaining change is immaterial. Selling, general and administrative expenses were $54.5 million for the 2022 Quarter, compared to $31.5 million for the 2021 Quarter. The $23.0 million increase was primarily related to: - an increase in acquisition related expenses classified as selling, general and administrative of $26.5 million which primarily consisted of financial advisory, banking, legal, and regulatory fees, other consulting fees, employee-related severance expenses, BDSI directors and officers insurance, and miscellaneous other acquisition expenses incurred; which was partially offset by - a decrease in salaries, wages and benefits of $4.6 million, due to us entering into a plan to reduce our workforce, primarily our salesforce, in the fourth quarter of 2021. As a result of the BDSI Acquisition, we expect to incur additional acquisition related expenses relating to consulting fees, contract termination costs, and other integration related expenses during the remainder of 2022. #### Interest expense and Interest income Interest expense was $5.8 million for the 2022 Quarter, compared to $5.7 million in the 2021 Quarter. Interest income was $4,000 for the 2022 Quarter, compared to $3,000 in the 2021 Quarter. Interest expense and interest income were materially consistent in the 2022 Quarter compared to the 2021 Quarter. Interest expense will increase in future periods as a result of the 2022 Loan Agreement that was entered into in connection with the BDSI Acquisition. #### Taxes Benefit from income taxes was $2.8 million for the 2022 Quarter, compared to $188,000 in the 2021 Quarter. The $2.6 million increase was primarily due to higher net loss as a result of acquisition related expenses. The effective tax rate was 17.5% and (1.2)% for the three months ended March 31, 2022 and 2021, respectively. The benefit from income taxes in the first quarter of 2022 reflects the tax benefit from the net loss, which includes the impact of discrete nondeductible transaction costs and excess tax benefits. For the 2021 Quarter, the Company maintained a full valuation allowance and tax benefits were not recognized. The $188,000 benefit from income taxes in the 2021 Quarter primarily represented excess tax benefits related to stock-based compensation partially offset by provisions for current state income taxes. ### LIQUIDITY AND CAPITAL RESOURCES ### Sources of Liquidity We have incurred cumulative net losses and negative cash flows from operations since inception until 2020. Historically, we have funded our operations primarily through the private placements of our preferred stock and convertible notes, public offerings of common stock and convertible notes, and commercial bank debt. We are primarily dependent on the commercial success of Xtampza, the Nucynta Products, and Belbuca. During the three months ended March 31, 2022, our debt balance increased significantly as we modified the 2020 Term Notes with Pharmakon to an increased principal balance of $650.0 million to fund a portion of the consideration paid to complete the BDSI Acquisition. We are required to pay $100.0 million in amortization payments during the first year of the 2022 Term Loan and the remaining $550.0 million balance is required to be paid in equal quarterly installments over the remaining three years of the term note. As of March 31, 2022, and December 31, 2021, we had $106.7 million and $186.4 million in cash and cash equivalents, respectively. We believe that our cash and cash equivalents at March 31, 2022, together with expected cash inflows from the commercialization of our products, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for at least one year from the date the consolidated financial statements were issued. ### Borrowing Arrangements On March 22, 2022, in connection with the BDSI Acquisition closing, we entered into the 2022 Loan Agreement for the 2022 Term Loan, the proceeds of which were used to repay our existing term notes, and fund a portion of the consideration to be paid to complete the BDSI Acquisition. The 2022 Term Loan will mature on the 48-month anniversary of the closing of the BDSI Acquisition and is guaranteed by our material domestic subsidiaries. The 2022 Term Loan is also secured by substantially all of our assets and our material domestic subsidiaries. The 2022 Term Loan will bear interest at a rate based upon LIBOR (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per annum. As of March 31, 2022, the interest rate was 8.7%. We are required to repay the 2022 Term Loan by paying $100,000 in amortization payments during the first year and the remaining $550,000 balance will amortize in equal quarterly installments over the remaining three years. The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium. The prepayment premium is equal to 2.00% of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00% of the principal amount being prepaid on or after the second-year anniversary of the closing date. The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date. A change of control also triggers a mandatory prepayment of the 2022 Term Loan. The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business. Failure to comply with these covenants would constitute an event of default under the 2022 Loan Agreement, notwithstanding our ability to meet our debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement. ### Cash Flows *(in thousands)* | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ ​ | ​ ​ 2021 | | --- | ---: | --- | ---: | | Net cash used in (provided by) operating activities | $(25,315) | | $20,570 | | Net cash used in investing activities | (572,177) | ​ | (428) | | Net cash provided by (used in) financing activities | 517,764 | ​ | (11,468) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(79,728) | ​ | $8,674 | *Operating activities.* Cash used in operating activities was $25.3 million in the 2022 Quarter, compared to cash provided by operating activities of $20.6 million in 2021 Quarter. The $45.9 million decrease was primarily due to lower net income exclusive of non-cash items as a result of lower net product revenues and higher operating expenses, mainly acquisition related expenses in connection with the BDSI Acquisition, combined with changes in working capital. The changes in working capital were primarily driven by the change in accrued rebates, returns and discounts due to the timing of rebate payments. *Investing activities.* Cash used in investing activities was $572.2 million in the 2022 Quarter, compared to $428,000 in the 2021 Quarter. The $571.8 million increase was primarily related to the BDSI Acquisition, net of cash acquired, which closed in the 2022 Quarter. *Financing activities.* Cash provided by financing activities was $517.8 million for the 2022 Quarter, compared to cash used in financing activities of $11.5 million in the 2021 Quarter. The $529.3 million increase was primarily related to the repayment of the 2020 Term Notes and subsequent execution of the 2022 Term Loan as described in Note 11, *Term Notes Payable.* ### Funding Requirements We believe that our cash and cash equivalents as of March 31, 2022, together with expected cash inflows from operations, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for at least one year from the date the consolidated financial statements were issued. However, we are subject to all the risks common to the commercialization and development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Certain economic or strategic considerations may cause us to seek additional cash through private or public debt or equity offerings. Such funds may not be available when needed, or, we may not be able to obtain funding on favorable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects. Our forecast that our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including: - the generation of reasonable levels of revenue from products sales; - the cost of growing and maintaining sales, marketing and distribution capabilities for our products; - the cost of patent infringement litigation, which may be expensive to defend; - the cost of litigation related to opioid marketing and distribution practices; - the timing and costs associated with manufacturing our products, for commercial sale and clinical trials; and - the effect of competing technological and market developments. If we cannot capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected. ### ADDITIONAL INFORMATION To supplement our financial results presented on a GAAP basis, we have included information about certain non-GAAP financial measures such as adjusted EBITDA and adjusted operating expenses. We use these non-GAAP financial measures to understand, manage and evaluate our business as we believe they provide additional information on the performance of our business. We believe that the presentation of these non-GAAP financial measures, taken in conjunction with our results under GAAP, provide analysts, investors, lenders and other third parties insight into our view and assessment of our ongoing operating performance. In addition, we believe that the presentation of these non-GAAP financial measures, when viewed with our results under GAAP and the accompanying reconciliations, provide supplementary information that may be useful to analysts, investors, lenders, and other third parties in assessing our performance and results from period to period. We report these non-GAAP financial measures to portray the results of our operations prior to considering certain income statement elements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP. In our quarterly and annual reports, earnings press releases and conference calls, we may discuss the following financial measures that are not calculated in accordance with GAAP, to supplement our consolidated financial statements presented on a GAAP basis. #### Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income adjusted to exclude interest expense, interest income, the benefit from or provision for income taxes, depreciation, amortization, stock-based compensation, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted EBITDA, as used by us, may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. There are several limitations related to the use of adjusted EBITDA rather than net income, which is the nearest GAAP equivalent, such as: - adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA; - we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position; - adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs; - adjusted EBITDA does not reflect the benefit from or provision for income taxes or the cash requirements to pay taxes; - adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; - we exclude restructuring expenses from adjusted EBITDA. Restructuring expenses primarily include employee severance and contract termination costs that are not related to acquisitions. The amount and/or frequency of these restructuring expenses are not part of our underlying business; - we exclude litigation settlements from adjusted EBITDA, as well as any applicable income items or credit adjustments due to subsequent changes in estimates. This does not include our legal fees to defend claims, which are expensed as incurred; - we exclude acquisition related expenses as the amount and/or frequency of these expenses are not part of our underlying business. Acquisition related expenses include transaction costs, which primarily consisted of financial advisory, banking, legal, and regulatory fees, and other consulting fees, incurred to complete the acquisition, employee-related expenses (severance cost and benefits) for terminated employees after the acquisition, and miscellaneous other acquisition expenses incurred; and - we exclude recognition of the step-up basis in inventory from acquisitions as the amount and/or frequency of these expenses are not part of our underlying business. Adjusted EBITDA for the three months ended March 31, 2022 and 2021 was as follows: | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ ​ | ​ ​ 2021 | | --- | --- | --- | --- | | GAAP Net (loss) income | $(13,069) | ​ | $15,662 | | Adjustments: | ​ ​ | ​ | ​ ​ | | Interest expense | ​ 5,831 | ​ | ​ 5,721 | | Interest income | ​ (4) | ​ | ​ (3) | | (Benefit from) provision for income taxes | ​ (2,773) | ​ | ​ (188) | | Depreciation | ​ 715 | ​ | ​ 439 | | Amortization | ​ 18,923 | ​ | ​ 16,795 | | Stock-based compensation expense | ​ 6,135 | ​ | ​ 6,879 | | Acquisition related expenses | ​ 27,167 | ​ | ​ — | | Recognition of step-up basis in inventory | ​ 603 | ​ | ​ — | | Total adjustments | $56,597 | ​ | $29,643 | | Adjusted EBITDA | $43,528 | ​ | $45,305 | Adjusted EBITDA was $43.5 million for the 2022 Quarter compared to $45.3 million for the 2021 Quarter. The $1.8 million decrease was primarily due to lower revenue and gross profit, partially offset by a benefit from lower adjusted operating expenses, as discussed below. #### Adjusted Operating Expenses Adjusted operating expenses is a non-GAAP financial measure that represents GAAP operating expenses adjusted to exclude stock-based compensation expense, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted operating expenses for the three months ended March 31, 2022 and 2021 were as follows: | ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2022 | ​ ​ | ​ ​ 2021 | | --- | --- | --- | --- | | GAAP Operating expenses | $58,511 | ​ | $34,406 | | Adjustments: | ​ ​ | ​ | ​ ​ | | Stock-based compensation | ​ 6,135 | ​ | ​ 6,879 | | Restructuring | ​ — | ​ | ​ — | | Litigation settlements | ​ — | ​ | ​ — | | Acquisition related expenses | ​ 27,167 | ​ | ​ — | | Total adjustments | ​ 33,302 | ​ | ​ 6,879 | | Adjusted operating expenses | $25,209 | ​ | $27,527 | Operating expenses, excluding stock-based compensation was $25.2 million in the 2022 Quarter compared to $27.5 million in the 2021 Quarter. The $2.3 million decrease was primarily driven by lower salaries, wages and benefits due to us entering into a plan to reduce our workforce, primarily our salesforce, in the fourth quarter of 2021. ### CONTRACTUAL OBLIGATIONS With the exception of the 2022 Term Loan as discussed in Note 11, *Term Notes Payable,* there have been no material changes to the contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. ### OFF-BALANCE SHEET ARRANGEMENTS We did not have during the periods presented any off‑balance sheet arrangements, as defined under SEC rules. ## Market risk As filed, 307 characters. For information regarding our exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report. There have been no significant changes in our financial instrument portfolio or market risk exposures since our fiscal year ended December 31, 2021. ## Controls and procedures As filed, 2,571 characters. ### Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. As permitted by SEC guidance, which provides that a newly acquired company may be excluded from management’s evaluation of disclosure controls and procedures for up to a year from the date of acquisition, BDSI was excluded from the evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2022. BDSI, which we acquired in March 2022, represented approximately 8% of the Company’s total consolidated assets (excluding goodwill, intangibles, and the recognition of step-up basis in inventory) and 4% of our consolidated total revenue for the three months ended March 31, 2022. ### Changes in Internal Control Over Financial Reporting We are currently in the process of evaluating and integrating the acquired operations, processes, and internal controls of BDSI. Except for the acquisition of BDSI, which we expect to integrate into our existing internal control environment, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 86,591 characters. ### Risk Factors Summary Our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include, among others, the following principal risk factors that make an investment in our company speculative or risky. You are encouraged to carefully review our full discussion of the material risk factors relevant to an investment in our business, which follows the brief bulleted list of our principal risk factors set forth below: - Our ability to maintain profitability is dependent upon our ability to continue successfully commercializing our products and any products and future product candidates, if approved, that we may develop or acquire in the future; - We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations. - If we cannot continue successfully commercializing our products, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline; - Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to market our products successfully may be adversely affected; - Xtampza ER, the Nucynta Products and Belbuca are subject to mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of these products; - We could fail to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations; - Failure to comply with ongoing governmental regulations for marketing any product, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions. - Unfavorable outcomes in intellectual property litigation could be costly and potentially limit our ability to commercialize our products; - If we are unable to obtain or maintain intellectual property rights for our technologies, products or any future product candidates which we may develop, we may lose valuable assets or be unable to compete effectively in our market; - We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets; - Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. - If we are unable to utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing our products and may be unable to generate sufficient product revenue; - If the medical community, patients, and healthcare payors do not accept and use our products, we will not achieve sufficient product revenues and our business will suffer; - Our products contain, and our future product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies; - Current and future legislation may increase the difficulty and cost for us to continue to commercialize our products and may reduce the prices we are able to obtain for our products; - Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain; - Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for our products and may adversely impact external investor perceptions of our business; - If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that compete with our products, our sales could decline; - If the third-party manufacturers of our products fail to devote sufficient time and resources to these products, or their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business; - Because we currently rely on a sole supplier to manufacture the active pharmaceutical ingredient of our products, any production problems with our supplier could have a material adverse effect on us; - We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations may be adversely affected; - Our products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control; - Our ability to realize the benefits of the acquisition of BDSI is substantially dependent on the timely and effective integration of the operations of Collegium and BDSI; - Our business may continue to be adversely affected by the COVID-19 pandemic; - Litigation or regulatory action regarding opioid medications could negatively affect our business; - We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products more successfully than we do; - Commercial sales of our products, and clinical trials of our products and any future product candidates, may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all. - Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings; and - The price of our common stock may be volatile and you may lose all or part of your investment. ### Risks Related to Our Financial Position and Capital Needs ***Our ability to maintain profitability is dependent upon our ability to continue successfully commercializing our products and any products and future product candidates, if approved, that we may develop or acquire in the future. Our failure to do so successfully could impair our growth strategy and plans and could have a material adverse effect on our business, financial position, and operating results.*** Our ability to maintain profitability depends upon our ability to realize the full commercial potential of our products and to commercialize successfully any other products and future product candidates, if approved, that we may develop, in-license or acquire in the future. Our ability to generate revenue from our current or future products depends on a number of factors, including our ability to: - realize a commercially viable price for our products; - manufacture commercial quantities of our products at acceptable cost levels; - sustain a commercial organization capable of sales, marketing and distribution for the products we sell; - obtain coverage and adequate reimbursement from third parties, including government payors; and - comply with existing and changing laws and regulations that apply to the pharmaceutical industry, including opioid manufacturers, and to our products specifically, including FDA post-marketing requirements. If we fail to maintain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. ***Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.*** As of December 31, 2021, we had a federal net operating loss (“NOL”) carryforward of approximately $119.3 million and state NOL carryovers of approximately $103.0 million, which are available to offset future taxable income. The U.S. federal and state NOL carryforwards expire at various dates through 2036. We also had U.S. federal tax credits of approximately $4.5 million, and state tax credits of approximately $1.0 million. These tax attributes are generally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended. As part of the BDSI acquisition, we acquired an estimated $237 million of federal NOL carryovers, an estimated $164 million of state NOL carryovers, and U.S. federal tax credits of an estimated $10 million, all of which are generally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended. The Company is still finalizing the tax analyses related to the BDSI Acquisition and anticipates finalizing the purchase price allocation and related tax analyses as the information necessary to complete the analysis is obtained. The finalization of these analyses will be complete no later than one year after the Acquisition Date. Refer to Note 16, *Income Taxes*, for more information. ***We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations.*** In February 2020, in connection with the Nucynta Acquisition, we incurred $143.8 million in principal amount of indebtedness in the form of 2.625% Convertible Senior Notes due in 2026 (the “Convertible Notes”). In addition, we have $650.0 million in secured indebtedness pursuant to our Amended and Restated Loan Agreement with BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (as amended from time to time, the “2022 Loan Agreement”). We may also incur additional indebtedness to meet future financing needs. Our existing and future levels of indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: - requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes; - limiting our ability to obtain additional financing; - limiting our flexibility to plan for, or react to, changes in our business; - diluting the interests of our existing shareholders as a result of issuing shares of our common stock upon conversion of the convertible notes; - placing us at a possible competitive disadvantage with competitors that are less leveraged than we are or have better access to capital; - increasing our vulnerability to downturns in our business, our industry or the economy in general, including any such downturn related to the impact of the COVID-19 pandemic. Holders of our Convertible Notes will have the right to require us to repurchase our Convertible Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion of our Convertible Notes. Further, our noteholders, subject to a limited exception described in the notes, may require us to repurchase their notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the notes or pay the cash amounts due upon conversion. Applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the notes or pay the cash amounts due upon conversion. Additionally, our 2022 Loan Agreement contains certain covenants and obligations applicable to us, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business, which could limit our ability to capitalize on business opportunities that may arise or otherwise place us at a competitive disadvantage relative to our competitors. Failure to comply with covenants in the indenture governing the Convertible Notes or in the 2022 Loan Agreement would constitute an event of default under these instruments, notwithstanding our ability to meet our debt service obligations. Our failure to repurchase notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. In such event, we may not have sufficient funds to satisfy all amounts due under our other indebtedness (including the 2022 Loan Agreement) and the notes. The 2022 Loan Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement. If we fail to comply with such covenants and terms, we may be in default and the maturity of the related debt could be accelerated and become immediately due and payable. In addition, because our assets are pledged as a security under the 2022 Loan Agreement, if we are not able to cure any default or repay outstanding borrowings, our assets are subject to the risk of foreclosure by our lenders. Moreover, a default on indebtedness under the 2022 Loan Agreement could result in a default under the terms of the indenture governing our Convertible Notes. There is no guarantee that we would be able to satisfy our obligations if any of our indebtedness is accelerated. ### Risks Related to our Products ***If we cannot continue successfully commercializing our products, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.*** To date, we have invested substantial resources in the development of Xtampza ER, which has been approved by the FDA. In February 2018, we began marketing the Nucynta Products and in March 2022 we acquired and began marketing Belbuca, Symproic and Elyxyb. Our business and future success are substantially dependent on our ability to continue successfully commercializing these products. Our ability to continue successfully commercializing our products will depend on many factors, including but not limited to: - our ability to manufacture commercial quantities of our products at reasonable cost and with sufficient speed to meet commercial demand; - our ability to execute sales and marketing strategies successfully and continually; - our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage of our products; - the perceived availability and advantages, relative cost, relative safety and relative efficacy of other abuse-deterrent products and treatments with similar indications; - our ability to defend successfully any challenges to our intellectual property or suits asserting patent infringement relating to our products; - the availability and quality of coverage and adequate reimbursement for our products; - a continued acceptable safety profile of our products; and - our ability to comply with applicable legal and regulatory requirements, including any additional manufacturing or packaging requirements that may become applicable to certain opioid products. Many of these matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will be able to continue successfully commercializing or to generate sufficient revenue from our products. If we cannot do so, or are significantly delayed in doing so, our business will be materially harmed. ***Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to market our products successfully may be adversely affected.*** Xtampza ER was approved with label language describing abuse-deterrent properties of the formulation with respect to the nasal and IV routes of abuse, consistent with Guidance for Industry, “Abuse-Deterrent Opioids- Evaluation and Labeling.” In November 2017, the FDA approved an sNDA for Xtampza ER to include comparative oral pharmacokinetic data from a clinical study evaluating the effect of physical manipulation by crushing Xtampza ER compared with OxyContin and a control (oxycodone hydrochloride immediate-release), results from an oral human abuse potential study and the addition of an oral abuse deterrent claim. The FDA can require changes to the product labeling for any of our products at any time which can impact our ability to generate product sales. In particular, if the FDA determines that our post-marketing data for Xtampza ER does not demonstrate that the abuse-deterrent properties result in reduction of abuse, or demonstrates a shift to routes of abuse that present a greater risk, the FDA may find that product labeling revisions are needed, and potentially require the removal of our abuse-deterrence claims, which would have a material adverse effect on our ability to continue successfully commercializing Xtampza ER. ***Our opioid products are subject to mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of these products.*** The FDA has imposed a class-wide REMS on all IR, ER and long-acting opioid drug products (known as the Opioid Analgesic REMS). The FDA continually evaluates whether the REMS program is meeting its goal of ensuring that the benefit of these drugs continue to outweigh their risks, and whether the goals or elements of the program should be modified. As opioids, Xtampza ER, the Nucynta Products and Belbuca are subject to the Opioid Analgesic REMS. In addition, Onsolis, which we acquired in the BDSI Acquisition, is subject to a REMS program covering all transmucosal fentanyl products (known as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program). Any modification of the Opioid Analgesic REMS or the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program by the FDA to impose additional or more burdensome requirements could increase the costs associated with marketing these products and/or reduce the willingness of healthcare providers to prescribe these products, which would have a material adverse effect on our, or, with respect to Onsolis, our partners’, ability to continue to successfully commercialize and generate sufficient revenue from these products. ***We could fail to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations.*** Xtampza ER has FDA-approved product labeling that describes its abuse deterrent features, which allows us to promote those features and differentiate Xtampza ER from other opioid products containing the same active pharmaceutical ingredients. Because the FDA closely regulates promotional materials and other promotional activities, even though the FDA approved product labeling includes a description of the abuse deterrent characteristics of Xtampza ER, the FDA may object to our marketing claims and product advertising campaigns. This could lead to the issuance of warning letters or untitled letters, suspension or withdrawal of our products from the market, recalls, fines, disgorgement of money, operating restrictions, injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of Xtampza ER. ***Failure to comply with ongoing governmental regulations for marketing any product could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions.*** Advertising and promotion of any pharmaceutical product marketed in the United States is heavily scrutinized by, among others, the FDA, the Department of Justice, the Office of Inspector General for the U.S. Department of Health and Human Services (“HHS”), state attorneys general, members of Congress and the public. Violations, including promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Engaging in off-label promotion of our products could also subject us to false claims liability under federal and state statutes, and other litigation and/or investigations, which could lead to civil and criminal penalties and fines, and could also require us to enter into agreements that materially restrict the manner in which we promote or distribute our drug products. In addition, after product approval, subsequent discovery of serious and unanticipated adverse events associated with the product; the emergence of other problems with the product, manufacturer or facility; or our failure to make required regulatory submissions may result in adverse regulatory actions, including withdrawal of the product from the market or the requirement to add or strengthen label warnings about the product. The failure to obtain or maintain requisite governmental approvals or the imposition of additional or stronger warnings could delay or preclude us from further developing, marketing or realizing the full commercial potential of our products. ### Risks Related to Intellectual Property ***Unfavorable outcomes in intellectual property litigation could be costly and potentially limit our ability to commercialize our products.*** Our commercial success depends upon our ability to commercialize products without infringing the intellectual property rights of others. Our current or future products, or any uses of them, may now or in the future infringe third-party patents or other intellectual property rights. We cannot currently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted to be infringed by the manufacture, use and sale of our products. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing or commercializing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our products or force us to cease some of our business operations. Any litigation, including any interference or derivation proceedings to determine priority of inventions, oppositions or other post-grant review proceedings to patents in the United States, or litigation against our collaborators may be costly and time consuming and could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. We expect that litigation may be necessary in some instances to determine the validity and scope of our proprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Ultimately, the outcome of such litigation, including our pending litigation with Purdue and Aquestive Therapeutics, Inc., could compromise the validity and scope of our patents or other proprietary rights or hinder our ability to manufacture and market our products. ***If we are unable to obtain or maintain intellectual property rights for our technologies, products or any future product candidates which we may develop, we may lose valuable assets or be unable to compete effectively in our market.*** We depend on our ability to protect our proprietary technology. We rely on patent and trademark laws, unpatented trade secrets and know-how, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability to obtain and maintain patent protection in the United States with respect to our proprietary technology and products. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights in the United States. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. ***We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets.*** We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors, and to protect our trade secrets. In so doing, we may place our intellectual property at risk of being invalidated, rendered unenforceable or limited or narrowed in scope. This litigation is expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In addition, an adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. ***If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.*** In addition to seeking patents for some of our technology and products, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor, or those with whom they communicate, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed or independently developed, our competitive position would be harmed. ***Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.*** The USPTO requires compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents are required to be paid to the USPTO in several stages over the lifetime of the patents. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products, our competitive position would be adversely affected. ### Risks Related to the Commercialization of Our Products ***If we are unable to utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing our products and may be unable to generate sufficient product revenue.*** Our commercial organization continues to evolve and we cannot guarantee that we will continue to be successful in marketing our products. In addition, we compete with other pharmaceutical and biotechnology companies with extensive and well-funded sales and marketing operations to recruit, hire, train and retain sales and marketing personnel. If we are unable to continue to grow and maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, including with respect to our recent acquisition of Belbuca, Symproic and Elyxyb, we may not be able to generate sufficient product revenue and may not remain profitable. Factors that may inhibit our efforts to continue successfully commercializing our products in the United States include: - our inability to recruit and retain adequate numbers of effective sales and marketing personnel; - the inability of sales personnel to reach adequate numbers of physicians who may prescribe our products; and - unforeseen costs and expenses associated with creating and maintaining an independent sales and marketing organization. If we are not successful in retaining sales and marketing personnel or in maintaining our sales and marketing infrastructure or if we do not preserve strategic alliances with marketing collaborators, agreements with contract sales organizations or collaboration arrangements, we will have difficulty in continuing to commercialize our products. Additionally, our sales, marketing and distribution capabilities may be hindered as a result of the COVID-19 outbreak. The safety and well-being of our employees is our highest priority and we expect to maintain mitigating measures until such time as mandated closures or other restrictions are lifted and public health officials change their recommendations, and we have, and will continue to, equip our personnel with the tools and resources needed to effectively continue their sales and marketing efforts in a manner that complies with all relevant regulations, whether in person or from a remote setting. We face the risk, however, that limitations on activities within the healthcare sector and on economic activity generally will impede our ability to continue successfully commercializing our products. Notwithstanding the lifting of some COVID-19 restrictions in many jurisdictions, and amidst continuing public health concerns relating to the spread of COVID-19, particularly variants thereof, weekly pain patient office visits continue to be depressed compared to pre-COVID periods, which we believe in turn may account for fewer patients beginning therapy with our products. We believe that the disruptions caused by COVID-19 will continue and there remains substantial uncertainty as to when such disruptions will cease. If we are unable to successfully commercialize our products during the COVID-19 outbreak, our ability to generate sufficient product revenue may be adversely affected. ***If the medical community, patients, and healthcare payors do not accept and use our products, we will not achieve sufficient product revenues and our business will suffer.*** Physicians and others in the medical community, patients, and healthcare payors may not accept and use our products. Acceptance and use of our products will depend on a number of factors including: - approved indications, warnings and precautions language that may be less desirable than competitive products; - perceptions of physicians and other healthcare community members of the safety and efficacy of our products; - perceptions by members of the healthcare community, including physicians, about the relevance and efficacy of our abuse deterrent technology; - the availability of competitive products; - the pricing and cost-effectiveness of our products relative to competing products; - the potential and perceived advantages of our products over alternative treatments; - the convenience and ease of administration to patients of our products; - actual and perceived availability and quality of coverage and reimbursement for our products from government or other third-party payors; - negative publicity related to our products or negative or positive publicity related to our competitors’ products; - the prevalence and severity of adverse side effects; - policy initiatives by FDA, HHS, DEA, or other federal or state agencies regarding opioids; - our ability to comply with the Opioid Analgesic REMS; and - the effectiveness of marketing and distribution efforts by us and any licensees and distributors. If our products fail to have an adequate level of acceptance by the medical community, patients, or healthcare payors, we will not be able to generate sufficient revenue to remain profitable. Since we expect to rely on sales generated by Xtampza ER, the Nucynta Products, Belbuca, Symproic and Elyxyb for substantially all of our revenues for the foreseeable future, the failure of these products to maintain market acceptance would harm our business prospects. ***Some of our products contain, and our future product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies.*** Some of our products contain, and our future product candidates may contain, controlled substances that are subject to state and federal laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza ER’s active ingredient, oxycodone, and the Nucynta Products’ active ingredient, tapentadol, are both classified as Schedule II controlled substances under the CSA and regulations of the DEA and the active ingredient in Belbuca, buprenorphine, is classified as a Schedule III controlled substance. A number of states also independently regulate these drugs, including oxycodone, tapentadol and buprenorphine, as controlled substances. We and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state and federal law enforcement and regulatory agencies and comply with state and federal laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. Furthermore, the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the CSA and DEA regulations. For more information, see the section in our Annual Report entitled “Business-Government Regulation-DEA and Opioid Regulation.” We may not be able to obtain sufficient quantities of these controlled substances in order to meet commercial demand. If commercial demand for Xtampza ER, or any of our other approved products, increases and we cannot meet such demand in a timely fashion because of our limited supply of its active pharmaceutical ingredient (in the case of Xtampza ER, oxycodone) then physicians may perceive such product as unavailable and may be less likely to prescribe it in the future. In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas (for Schedule I and II substances), recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of our products that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances. Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from developing and commercializing our products that contain controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of our products containing controlled substances. ***Current and future legislation may increase the difficulty and cost for us to continue to commercialize our products and may reduce the prices we are able to obtain for our products.*** In the United States, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system generally, and the manufacturing, distribution, and marketing of opioids in particular, that could prevent or delay marketing approval of future product candidates, restrict or regulate post-approval activities or affect our ability to profitably sell our products for which we obtain marketing approval. For example, several states, including New York, have recently imposed taxes or fees on the sale of opioids. Other states, and even the federal government, as proposed in the LifeBOAT Act introduced by a bipartisan group of Senators in May 2021, could impose similar taxes or fees, and such laws and proposals can vary in the tax and fee amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations. California and several other states have enacted legislation related to prescription drug pricing transparency and it is unclear the effect this legislation will have on our business. Laws intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms may continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing of our products may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may subject us to more stringent product labeling and post-marketing testing and other requirements. ***Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain.*** The regulations that govern marketing approvals, pricing and reimbursement for new drug products can vary widely. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Pricing limitations may hinder our ability to recoup our investment in our products. Our ability to commercialize any product successfully will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors determine which medications they will cover and establish reimbursement levels and tiers of preference based on the perceived value and innovation of a given product. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications and establishing administrative hurdles that incentivize use of generic and/or lower cost products first. Increasingly, third-party payors are requiring that drug companies provide them with discounts and rebates from list prices and are challenging the prices charged for medical products. We have agreed to provide such discounts and rebates to certain third-party payors. We expect increasing pressure to offer larger discounts and rebates. Additionally, a greater number of third-party payors may seek discounts and rebates in order to offer or maintain access for our products. We cannot be sure that high-quality coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be and whether it will be satisfactory. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from policy and payment limitations in setting their own reimbursement policies. Our inability to expand and maintain coverage and profitable reimbursement rates from both government-funded and private payors for our products could have a material adverse effect on our operating results, our ability to raise capital needed to continue to commercialize our products and our overall financial condition. ***The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to continue to commercialize our products and affect the prices we may obtain.*** The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that may affect our ability to profitably sell our product and product candidates, if approved. The United States government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. The Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the Affordable Care Act, and the Affordable Care Act has also been subject to challenges in the courts. See the section in our Annual Report entitled “Business-Government Regulation-Healthcare Reform.” Further changes to and under the Affordable Care Act remain possible, although the new Biden administration has signaled that it plans to build on the Affordable Care Act and expand the number of people who are eligible for subsidies under it. President Biden indicated that he intends to use executive orders to undo changes to the Affordable Care Act made by the Trump administration and would advocate for legislation to build on the Affordable Care Act. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future. We expect that changes to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry. Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue and maintain profitability. ***Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for our products and may adversely impact external investor perceptions of our business.*** Law enforcement and regulatory agencies may apply policies and guidelines that seek to limit the availability or use of opioids. Such efforts may inhibit our ability to continue to commercialize our products. Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of oxycodone or other opioid drugs; the limitations of abuse-resistant formulations; the ability of people who abuse drugs to discover previously unknown ways to abuse opioid drugs, including Xtampza ER, the Nucynta Products and Belbuca; public inquiries and investigations into prescription drug abuse; litigation; or regulatory activity regarding sales, marketing, distribution or storage of opioid drugs could have a material adverse effect on our reputation. Such negative publicity could reduce the potential size of the market for our products, decrease the revenues we are able to generate from their sale and adversely impact external investor perceptions of our business. Similarly, to the extent opioid abuse becomes less prevalent or less urgent of a public health issue, regulators and third party payers may not be willing to pay a premium for abuse-deterrent formulations of opioid. Federal laws have been enacted to address the national epidemics of prescription opioid abuse and illicit opioid use, including the Comprehensive Addiction and Recovery Act and the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act. These laws are described in more detail in our Annual Report under the caption “Business- Governmental Regulation - DEA and Opioid Regulation.” ***If the FDA or other applicable regulatory authorities approve generic products with claims that compete with our products, our sales could decline.*** Once an NDA, including a Section 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug” which can, in turn, be cited by potential competitors in support of approval of an ANDA. The Federal Food, Drug, and Cosmetic Act, FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These generic equivalents would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product are typically lost to the generic product. Accordingly, competition from generic equivalents to our products would substantially limit our ability to generate revenues and therefore to obtain a return on the investments we have made in our products. In the past, we have initiated litigation with generic competitors that have filed Paragraph IV Certifications challenging certain of our patents. While we have entered into settlement agreements with certain competitors, we are currently pursuing litigation to defend against Paragraph IV Certifications related to Belbuca. For more information, see Note 15, *Commitments and Contingencies*, to our consolidated financial statements included in Part IV of this Quarterly Report on Form 10-Q. We believe that we will continue to be subject to ANDA-related litigation, which can be costly and distracting and has the potential to impact the long-term value of our products. In November 2017, FDA issued a final guidance to assist industry in the development of generic versions of approved opioids with abuse-deterrent formulations, including recommendations about the types of studies that companies should conduct to demonstrate that the generic drug is no less abuse-deterrent than its brand-name counterpart. In the second half of 2018, the FDA posted three revised product-specific guidances related to generic abuse-deterrent opioid formulations, including one guidance specifically relating to Xtampza ER, which recommend specific in vivo studies and in vitro study considerations for abuse deterrence evaluations. These guidances are part of FDA’s wider focus on assisting developers of generic abuse-deterrent formulations navigate the regulatory path to market more quickly. Earlier market entry of generic abuse-deterrent formulations could have a material adverse effect on our business. ### Risks Related to Our Dependence on Third Parties ***If the third-party manufacturers of our products fail to devote sufficient time and resources to these products, or their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business.*** We do not own any manufacturing facilities in drug development and commercial manufacturing. We currently have no plans to build our own clinical or commercial scale manufacturing facility and do not have the resources and expertise to manufacture and test, on a commercial scale, the technical performance of our products. We currently rely, and expect to continue to rely, on a limited number of experienced personnel and contract manufacturers for our products, as well as other vendors to formulate, test, supply, store and distribute our products, and we control only certain aspects of their activities. In 2020, we completed the build-out of a dedicated manufacturing suite at a site operated by our contract manufacturing organization, Patheon, part of Thermo Fisher Scientific. This facility requires the maintenance of regulatory approvals and other costs, all of which we will need to absorb. We cannot guarantee that we will be able to leverage the dedicated manufacturing suite in a profitable manner. If the demand for Xtampza ER and any future related products never meets our expectations and forecasts, or if we do not produce the output we plan, we may not be able to realize the return on investment we anticipated, which would have a negative impact on our financial condition and results of operations. We have initiated the activities required to transition commercial manufacturing for Nucynta ER from Janssen to Patheon. We cannot guarantee we will be successful in our efforts to demonstrate equivalence of product manufactured by Patheon with product manufactured by Janssen, and we may encounter delays in obtaining regulatory approval for Patheon as a new manufacturer and supplier of Nucynta ER. Additionally, we may be unsuccessful in validation activities, which could lead to delays in the transfer of manufacturing obligations, higher costs of validation, and/or rejection of otherwise saleable batches of Nucynta ER, all of which could have an adverse effect on our business and results of operations. Even if we are successful in our regulatory approval and validation activities, we could encounter issues in obtaining commercial supply from Patheon's facility due to technical problems or challenges obtaining adequate and/or timely DEA procurement quota. Although we have identified alternate sources for these services, it would be time-consuming, and require us to incur additional cost, to qualify these sources. Our reliance on a limited number of vendors and, in particular, Patheon as our single manufacturer for Xtampza ER and the future manufacturer of Nucynta ER, exposes us to the following risks, any of which could impact commercialization of our products, result in higher costs, or deprive us of potential product revenues: - Our contract manufacturer, or other third parties we rely on, may encounter difficulties in achieving the volume of production needed to satisfy commercial demand, may experience technical issues that impact quality or compliance with applicable and strictly enforced regulations governing the manufacture of pharmaceutical products, may be affected by natural disasters that interrupt or prevent manufacturing of our products including the ongoing COVID-19 pandemic, may experience shortages of qualified personnel to adequately staff production operations, may experience shortages of raw materials and may have difficulties finding replacement parts or equipment. - Our contract manufacturer could default on their agreement with us to meet our requirements for commercial supplies of our products and/or we could experience technical problems in the operation of our dedicated manufacturing suite. - The use of alternate manufacturers may be difficult because the number of potential manufacturers that have the necessary governmental licenses to produce narcotic products is limited. Additionally, the FDA and the DEA must approve any alternative manufacturer of our products, before we may use the alternative manufacturer to produce commercial supplies. - It may be difficult or impossible for us to find a replacement manufacturer on acceptable terms quickly, or at all. Our contract manufacturer and vendors may not perform as agreed or may not remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully. - If our contract manufacturer were to terminate our arrangement or fail to meet our commercial manufacturing demands, we may be forced to delay our development and commercial programs. Failure to obtain the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture our products could adversely affect our ability to continue to commercialize the product, which could in turn adversely affect our results of operations and financial condition. Certain components of Xtampza ER are naturally derived products, for which we rely on sole suppliers. The inability of any of our raw material suppliers to provide components that meet our specifications and requirements could adversely impact our ability to manufacture our product. Furthermore, the quota procurement process limits the amount of DEA-controlled active pharmaceutical ingredient we have available for manufacture. Consequently, we are limited in our ability to execute a business strategy that builds appreciable safety stock of finished drug product. Our reliance on third parties reduces our control over our development and commercialization activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards. The FDA and other regulatory authorities require our products to be manufactured according to cGMP. Any failure by our third-party manufacturer to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of products in a timely manner, could lead to a shortage of commercial product. Such failure could also be the basis for the FDA to issue a warning or untitled letter, withdraw approvals for products previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products, injunction, imposing civil penalties or pursuing criminal prosecution. Any stock out, or failure to obtain sufficient supplies of any of our products, or the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture each of our products, could adversely affect our ability to commercialize such products, which could in turn adversely affect our results of operations and financial condition. ***Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of our products, any production problems with any of our suppliers could have a material adverse effect on us.*** We presently depend upon a single supplier for the active pharmaceutical ingredient for Xtampza ER (oxycodone base), the Nucynta Products (tapentadol) and Symproic and two active pharmaceutical ingredient suppliers for Belbuca. We contract with these suppliers for commercial supply to manufacture our products. Further, our sole supplier for Xtampza ER and the Nucynta Products active pharmaceutical ingredients also supplies our primary competitor in the extended-release oxycodone space, Purdue. Identifying alternate sources of active pharmaceutical ingredients for our products is generally time-consuming and costly. Any changes that our suppliers make to the respective drug substance raw materials, intermediates, or manufacturing processes would introduce technical and regulatory risks to our downstream drug product supply. If our suppliers were to terminate an arrangement for an active pharmaceutical ingredient, or fail to meet our supply needs (including as a result of disruptions in personnel or the global supply chain resulting from the COVID-19 outbreak), we might incur substantial costs and be forced to delay our development or commercialization programs. Any such delay could have a material adverse effect on our business. ***Manufacturing issues may arise that could increase product and regulatory approval costs, delay commercialization or limit commercial supply.*** In our current commercial manufacturing operations, and as we scale up manufacturing of our products and conduct required stability testing, we may encounter product, packaging, equipment and process-related issues that may require refinement or resolution in order to proceed with our planned clinical trials, obtain regulatory approval for commercial marketing and build commercial supplies. In the future, we may identify impurities, which could result in increased scrutiny by regulatory authorities, delays in our clinical programs and regulatory approval, increases in our operating expenses, failure to obtain or maintain approval or limitations in our commercial supply. ***We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations may be adversely affected.*** A significant percentage of our product shipments are to a limited number of independent wholesale pharmaceutical distributors. Three of our wholesale pharmaceutical distributors represented 34%, 33% and 30% of our product shipments for the period ended March 31, 2022. Our loss of any of these wholesale pharmaceutical distributors’ accounts, or a material reduction in their purchases or a significant disruption to transportation infrastructure or other means of distribution of our products, including as a result of the ongoing COVID-19 outbreak, could have a material adverse effect on our business, results of operations, financial condition and prospects. The significance of each wholesale pharmaceutical distributor account to our business adversely impacts our ability to negotiate favorable commercial terms with each such distributor, and as a result, we may be forced to accept terms that adversely impact our results of operations. In addition, these wholesaler customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. We cannot guarantee that we can manage these pricing pressures or that wholesaler purchases will not fluctuate unexpectedly from period to period. In addition, due to unprecedented and significant disruptions in the processing of product returns by wholesale pharmaceutical distributors, as further disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company formally denied a significant portion of unprocessed product claims under the Company’s return policy. The Company subsequently received payment for only a portion of the denied claims and intends to vigorously pursue collections of the full amount of these short-pay receivables. Additional unprocessed return claims have and are expected to continue to expire prior to their physical return. Although the Company has and expects to continue to deny credit for product returns that are not in accordance with its return policy, uncertainty exists related to the ultimate resolution of these claims. We intend to pursue vigorously collections of the full amount of the receivable, but there can be no assurance that we will be able to do so or that similar disruptions in the wholesaler distribution network will not occur in the future. ***Our opioid products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control.*** Our opioid products are subject to a comprehensive regulatory scheme, including post-marketing requirements (“PMRs”) to conduct epidemiological studies and clinical trials. We intend to fulfill our PMRs by virtue of our participation in the Opioid PMR Consortium (“OPC”). Although we retain discretion in how to discharge such PMRs, the scale and scope of the studies required by the FDA make it cost prohibitive to discharge these requirements other than by joining the OPC that was formed to conduct them. We are a member of OPC and engage in decision-making as a member of that organization, but do not have a majority. If the OPC fails to conduct sufficiently rigorous studies or is unable to achieve the patient enrollment or other requirements established by the FDA, we may be unable to satisfy our PMRs and the FDA may choose to withdraw or otherwise restrict its approval of our opioid products. Such withdrawal or restriction would have an adverse impact on our business and financial condition. ***We rely on third parties to conduct our non-clinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to maintain regulatory approval for our products and our business could suffer a material adverse effect.*** We have relied upon and plan to continue to rely upon contract research organizations (“CROs”) to monitor and manage data for any non-clinical and clinical programs that we may conduct, including the OPC PMR studies discussed above. We rely on these parties for execution of our non-clinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs fail to comply with applicable GCP and other regulations, including as a result of any recent changes in such regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP requirements. While we have agreements governing the activities of our CROs, we have limited influence over their actual performance. Failure to comply with applicable regulations in the conduct of the clinical trials for our products would have an adverse impact on our commercial efforts. ### Risks Related to Our Business and Strategy ***Our ability to realize the benefits from the acquisition of BDSI is substantially dependent on the timely and effective integration of the operations of Collegium and BDSI.*** Our ability to realize the benefits from the acquisition of BDSI, which closed on March 22, 2022, is substantially dependent on the cost savings resulting from the timely and effective integration of the operations Collegium and BDSI. The process of integrating the operations of Collegium and BDSI could encounter unexpected costs and delays, which include: - failure to implement our business plans for the combined businesses and consolidation or expansion of production capacity as planned and where applicable; - unexpected losses of key employees, customers or suppliers; - unanticipated issues in conforming BDSI’s standards, processes, procedures and internal controls with our operations; - increasing the scope, geographic diversity and complexity of our operations; - diversion of management’s attention from other business concerns; - adverse effects on our or BDSI’s existing business relationships; - unanticipated expenses and liabilities; and - unanticipated issues in integrating sales, marketing and administrative functions. If BDSI has unanticipated or larger than anticipated liabilities for patent and trademark infringement claims, violations of laws, commercial disputes, taxes and other known and unknown types of liabilities, there may be liabilities that we underestimated or did not discover in the course of performing our due diligence investigation of our acquired companies and businesses. In addition, we may not be able to maintain or increase the levels of revenue, earnings or operating efficiency that BDSI and we had historically achieved or might achieve separately. If we are unable to timely and effectively integrate the operations of Collegium and BDSI, the anticipated cost savings, growth opportunities and other synergies of the BDSI Acquisition may not be realized fully or at all, or may take longer to realize than expected, which would adversely affect our costs. Further, even if the integration is timely and effective, we may never realize the cost savings expected from the integration of the operations of our two companies. ### Our business may continue to be adversely affected by the COVID-19 pandemic. The COVID-19 pandemic has, and will likely continue to have, a substantial impact on the delivery of healthcare services in the United States. Healthcare providers have reduced staffing and limited access for non-patients, including our sales professionals. Notwithstanding the lifting of COVID-19 restrictions in many jurisdictions, and amidst continuing public health concerns relating to the spread of COVID-19, weekly pain patient office visits continue to be depressed compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products. We believe that the disruptions caused by COVID-19 will continue and there remains substantial uncertainty as to when such disruptions will cease. These circumstances may result in reduced demand for our products and negatively impact our sales and results of operations. The extent to which the COVID-19 pandemic continues to impact our results of operation will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, the rate and manner in which it spreads, the duration of the pandemic, travel restrictions imposed by the United States and other countries, business closures or business disruption in the United States and other countries, a reduction in time spent out of home and the actions taken throughout the world, including in our markets, to contain COVID-19 or treat its impact. Although travel and other restrictions have been lifted in certain jurisdictions, there remains substantial uncertainty as to the possibility of further surges in infections, including surges resulting from the development of new variants of COVID-19 which could lead to travel and other restrictions being re-imposed. These actions could have a material adverse impact on our business, financial condition and results of operations, and we will continue to monitor the effects of the COVID-19 pandemic closely. ***Litigation or regulatory action regarding opioid medications could negatively affect our business.*** Beginning in 2018, lawsuits alleging damages related to opioids have been filed naming us as a defendant along with other manufacturers of prescription opioid medications. These lawsuits, filed in multiple jurisdictions, are brought by various local governments as well as private claimants, against various manufacturers, distributors and retail pharmacies. These lawsuits generally alleged that we had engaged in improper marketing practices related to Xtampza ER and the Nucynta Products. In March 2022, we entered into a Master Settlement Agreement resolving all 27 pending opioid-related lawsuits brought against us by cities, counties, and other subdivisions in the United States. As part of the Master Settlement Agreement, we paid $2.75 million to the plaintiffs and the cases will be dismissed, with prejudice. Certain governmental and regulatory agencies are focused on the abuse of opioid medications, a concern we share, and we have received Civil Investigative Demands or subpoenas from four state attorneys general investigating our sales and marketing of opioids and seeking documents relating to the manufacture, marketing and sale of opioid medications. In December 2021, we entered into an Assurance of Discontinuance with the Massachusetts Attorney General pursuant to which we provided certain assurances and agreed to pay certain of the Massachusetts Attorney General’s costs of investigation, in exchange for closure of the investigation and a release of claims pertaining to the subject matter of the investigation. We are cooperating fully in the open investigations. Managing litigation and responding to governmental investigations is costly and may involve a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve injunctive relief or substantial monetary penalties, either or both of which could have a material adverse effect on our reputation, business, results of operations and cash flows. ***We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products more successfully than we do.*** Competition in the pain and opioid market is intense. Our competitors include major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Our products compete with oral opioids, transdermal opioids, local anesthetic patches, stimulants and implantable and external infusion pumps that can be used for infusion of opioids and local anesthetics. Products of these types are marketed by Actavis, Endo, Mallinckrodt, Purdue, Teva, and others. Some of these current and potential future competitors may be addressing the same therapeutic areas or indications as we are. Many of our current and potential future competitors have significantly greater research and development capabilities than we do, have substantially more marketing, manufacturing, financial, technical, human and managerial resources than we do, and have more institutional experience than we do. Our competitors have developed or may develop technologies that are, or may be, the basis for competitive products that are safer, more effective or less costly than our products. Moreover, oral medications, transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery devices are currently available treatments for chronic pain, are widely accepted in the medical community and have a long history of use. These treatments will compete with our products and the established use of these competitive products may limit the potential for our products to receive widespread acceptance. ***Commercial sales of our products, and clinical trials of our products and any future product candidates, may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all.*** We currently carry product liability insurance. Product liability claims may be brought against us by patients; clinical trial participants; healthcare providers; or others using, administering or selling our products. If we cannot successfully defend ourselves against claims that our products caused injuries, we could incur substantial liabilities. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, liability claims may cause us to incur significant costs to defend the litigation. ***Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings.*** Healthcare providers, physicians and payors play a primary role in the recommendation and prescription of our products. Our arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products and any product candidates for which we may obtain marketing approval. Even though we do not and will not control referrals of healthcare services or bill Medicare, Medicaid or other third-party payors directly, we may provide reimbursement guidance and support regarding our products to our customers and patients. Federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. If a government authority were to conclude that we provided improper advice to our customers and/or encouraged the submission of false claims for reimbursement, we could face action by government authorities. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. ***We or the third parties upon whom we depend may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.*** Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage, health epidemic (such as the ongoing COVID-19 pandemic) or other event occurred that prevented us from using all or a significant portion of our facilities, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it might become difficult or, in certain cases, impossible for us to continue our business, and any disruption could last for a substantial period of time. The disaster recovery and business continuity plans we have in place, and the technology that we may rely upon to implement such plans, may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business, financial condition and results of operation. ### Risks Related to Our Common Stock ***The price of our common stock may be volatile and you may lose all or part of your investment.*** The market price of our common stock is highly volatile and may be subject to wide fluctuations in response to numerous factors described in these Risk Factors, some of which are beyond our control. The stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our business model, prospects or actual operating performance. The realization of any of these risks, or any of a broad range of other risks discussed in this report, could have a material adverse effect on the market price of our common stock. ***We are subject to anti-takeover provisions in our second amended and restated articles of incorporation and amended and restated bylaws and under Virginia law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our shareholders.*** Certain provisions of Virginia law, the state in which we are incorporated, and our second amended and restated articles of incorporation and amended and restated bylaws could hamper a third party’s acquisition of us, or discourage a third party from attempting to acquire control of us. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. In addition, these provisions make it more difficult for our shareholders to remove our Board of Directors or management or elect new directors to our Board of Directors. ***If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our financial condition, results of operations or cash flows accurately, which may adversely affect investor confidence in us and, as a result, the value of our common stock.*** The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting. We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. Further, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to capital markets. ***Sales of our common stock in the public market, either by us or by our current shareholders, or the perception that these sales could occur, could cause a decline in the market price of our securities. Moreover, the exercise of options and warrants and other issuances of shares of common stock or securities convertible into or exercisable for shares of common stock will dilute your ownership interests and may adversely affect the future market price of our common stock.*** Sales of our common stock in the public market, either by us or by our current shareholders, or the perception that these sales could occur, could cause a decline in the market price of our securities. All of the shares of our common stock held by our current shareholders may be immediately eligible for resale in the open market either in compliance with an exemption under Rule 144 promulgated under the Securities Act, or pursuant to an effective resale registration statement that we have previously filed with the SEC. Such sales, along with any other market transactions, could adversely affect the market price of our common stock. As of March 31, 2022, there were outstanding options to purchase an aggregate of 2,401,110 shares of our common stock at a weighted average exercise price of $18.20 per share, of which options to purchase 2,010,445 shares of our common stock were then exercisable. In addition, as of March 31, 2022, we had an outstanding warrant to purchase 1,041,667 shares of our common stock at an exercise price of $19.20 per share. The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our common stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts. ***There can be no assurance that we will repurchase shares additional shares of our common stock at all or at favorable prices.*** In August 2021, our board of directors authorized the Repurchase Program, and as of March 31, 2022, the remaining value of shares that may be repurchased pursuant to the Repurchase Program was $52.1 million. Any additional share repurchases will depend upon, among other factors, our cash balances and potential future capital requirements, our results of operations and financial condition, the price of our common stock on the NASDAQ Global Select Market, and other factors that we may deem relevant. We can provide no assurance that we will continue to repurchase shares of our Common Stock at favorable prices, if at all. Filed May 10, 2022. Source: SEC EDGAR, the filing index for accession 0001558370-22-008090. Last ingested by Listed: Nov 5, 2026, 12:06 ET. No prices; not investment advice.