EDGAR 10-K Filing

Company CIK: 1103021
Filing Year: 2022
Filename: 1103021_10-K_2022_0001103021-22-000051.json

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ITEM 1. BUSINESS
ITEM 1. Description of Business
On February 14, 2022, we entered into a definitive merger agreement to be acquired by Collegium Pharmaceutical, Inc. or Collegium. Pursuant to the merger agreement, and upon the terms and subject to the conditions thereof, a wholly owned acquisition subsidiary of Collegium, or Merger Sub, will commence a cash tender offer, or the tender offer, to acquire all of the issued and outstanding shares of our common stock at a price per share of $5.60, net to the seller of such shares in cash, without interest, subject to any withholding of taxes required by applicable law. The completion of the tender offer will be conditioned on at least a majority of the shares of our outstanding common stock having been validly tendered into and not withdrawn from the offer, receipt of certain regulatory approvals, and other customary conditions.
Following the completion of the tender offer, Merger Sub will merge with and into our company, with our company surviving as a wholly owned subsidiary of Collegium. The merger will be governed by Section 251(h) of the General Corporation Law of the State of Delaware, with no stockholder vote required to consummate the merger. In the merger, each outstanding share of our common stock (other than shares of common stock held by us as treasury stock, or owned by Collegium or Merger Sub or held by stockholders who are entitled to demand, and who properly demand, appraisal rights under Delaware law) will be converted into the right to receive $5.60 per share in cash, without interest, subject to any withholding of taxes required by applicable law.
We expect the transaction to close in the first quarter of 2022. If the transaction is completed, it is expected that our common stock will be removed from listing on the NASDAQ Stock Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended.
See Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Note 15 our consolidated financial statements included in this report for additional information regarding the transaction.
Overview
BioDelivery Sciences International, Inc. (NASDAQ: BDSI) is a rapidly growing specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions. We have built a portfolio of products that includes utilizing our novel and proprietary BioErodible MucoAdhesive, or BEMA, drug-delivery technology to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. At our core is a shared passion to make every day a little bit easier for patients and help improve the lives of people living with serious and debilitating chronic conditions so they can experience life to the fullest. We commercialize in the U.S. using our own sales force while working in partnership with third parties to commercialize our products outside the U.S. We have made it a point to deeply understand the patients’ journeys and are driven by recognizing the full impact of their conditions so we can deliver life-improving solutions. Our marketed products address serious and debilitating conditions, including chronic pain, opioid dependence and opioid-induced constipation.
Our Strategy
Our growth strategy continues to evolve from our capable and successful commercial organization. We seek to further build a well-balanced, diversified, high-growth specialty pharmaceuticals company focused on delivering innovative therapies for patients living with serious and debilitating diseases. Through our industry-leading commercialization infrastructure, we continue to deliver strong growth of our existing portfolio and also possess the skills to launch new product initiatives. As part of our corporate growth strategy, we have licensed and acquired products and will pursue additional product opportunities in therapeutic areas that meet the needs of our patients. With focused attention on patient access and a structured business-development process for transformative acquisitions or licensing opportunities, we will fully leverage our experience and apply it toward developing new partnerships that enable us to commercialize novel products that can improve the lives of people suffering from challenging medical conditions.
We will continue to drive value from our product portfolio with a strong emphasis on BELBUCA growth, including further adoption in the large long-acting opioid market. The product uses our proprietary BEMA technology and maintains a unique delivery profile, strong payer access position and growing physician interest. Symproic continues to climb in both prescriptions and prescribers, proving to be a valuable complementary product for our called upon universe of BELBUCA targets. Our latest portfolio addition, ELYXYB, will furthermore benefit from our sales and marketing expertise and will provide a building foundation in the neurology specialty to fuel future growth opportunities for the business.
Our Company
We are a publicly listed company. Our common stock is listed on The Nasdaq Global Select Market under the symbol “BDSI.” We were incorporated in the state of Indiana in 1997 and reincorporated as a Delaware-based corporation in 2002.
Background on Chronic Pain, Opioid Induced Constipation, Acute Migraine, Breakthrough Cancer Pain and Opioid Dependence
Chronic Pain
Chronic pain is often defined as any pain lasting more than 12 weeks. Whereas acute pain is a normal sensation that alerts us to possible injury, chronic pain persists - often for months or even longer. Chronic pain may arise from an initial injury, such as back sprain, or there may be an ongoing cause, such as an illness. Sometimes there is no clear cause. According to results from a National Health Interview Survey, there are over 25 million American adults experiencing daily chronic pain, with over 10 million of these experiencing severe pain on a daily basis.
Treatment Landscape for Chronic Pain
The pain market is well established, with many pharmaceutical companies marketing various formulations of existing molecules, as well as generic versions of older, non-patent protected products. In 2021, according to data from IQVIA (NSP & NPA), the market for long-acting opioids in the U.S. totaled approximately $2.4 billion in annual sales with just over 11 million prescriptions dispensed. However, prescription volume of long-acting opioids declined over 8% in 2021 compared to 2020 amidst continuing efforts to curb misuse, abuse and overuse of opioids in order to address the ongoing opioid overdose crisis.
A number of products are competitors to BELBUCA, including BuTrans from Purdue Pharma L.P., or Purdue, a transdermal formulation of buprenorphine which also has a generic equivalent available. Other competitors are U.S. Drug Enforcement Agency, ("DEA") Schedule II opioids. Approximately 74% of the prescriptions for long-acting opioids are dispensed as a generic product.
In addition to product competition, there are other factors that have impacted the market for pain products in general. Opioids continue to garner increased scrutiny based on the widespread problem of prescription drug abuse and addiction. The FDA and other government agencies have taken an increasing number of actions to address the problem of opioid abuse and addiction.
•In July 2012, the Federal Drug Administration, ("FDA"), approved a class-wide Risk Evaluation and Mitigation Strategy, or REMS, program for the extended release and long-acting opioids. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA falls within the existing class-wide REMS program.
•In August 2014, the DEA published its final ruling in the Federal Register moving hydrocodone combination products (such as Vicodin, Lortab, Norco, etc.) from Schedule III to the more-restrictive Schedule II, as recommended by the Assistant Secretary for Health of HHS and as supported by the DEA’s own evaluation of
relevant data. As a result of the ruling, hydrocodone containing products are now classified in the same category (Schedule II) as morphine and oxycodone.
•In March 2016, the U.S. Department of Health and Human Services, ("HHS’"), Centers for Disease Control and Prevention, or the CDC, issued guidelines for prescribing opioids for chronic pain. CDC developed and published the CDC Guideline for Prescribing Opioids for Chronic Pain to provide recommendations for the prescribing of opioid pain medication for patients 18 and older in primary care settings. Recommendations focus on the use of opioids in treating chronic pain. The guidelines advocate use of non-pharmacologic therapy and non-opioid pharmacologic therapy as first line therapy for chronic pain. When starting opioid therapy for chronic pain, clinicians are advised to prescribe immediate-release opioids instead of extended-release/long-acting, or ER/LA, opioids and to prescribe the lowest effective dosage. Clinicians were directed to reassess patient’s medication needs when considering doses of 50 morphine milligram equivalents, or MME or greater and should avoid increasing total daily doses to 90 MME or greater. A sharp reduction in prescriptions among primary care physicians and an increase among pain specialists are evidence of the shift in prescribing and in the dynamics of pain treatment.
•In June 2017, the FDA requested that Endo Pharmaceuticals, Inc. remove Opana ER (oxymorphone), from the market based on concerns that the benefits of the drug may no longer outweigh its risks. This was the first time the agency took steps to remove a currently marketed opioid pain medication from sale due to the public health consequences of abuse. The FDA’s decision was based on a review of all available post-marketing data, which demonstrated a significant shift in the route of abuse of Opana ER from nasal to injection following the product’s reformulation.
•In September 2017, the CDC removed the MME conversion factors for buprenorphine from its online oral MME data file. And, in 2018, it included a statement in the MME data file noting “Buprenorphine doses are not expected to be associated with overdose risk in the same dose-dependent manner as doses for full agonist opioids.”
•In May 2019, the Health and Human Services Pain Management Best Practices Inter-Agency Task Force issued their Final Report on Pain Management Best Practices: Updates, Gaps, Inconsistencies, and Recommendations. The report identified that one of the barriers in pain management best practices “includes lack of coverage and reimbursement for buprenorphine as well as the lack of education and training on the proper usage of buprenorphine. There has been a lack of access to buprenorphine treatment for chronic pain.” The report then makes recommendations that third-party payers should provide coverage and reimbursement for buprenorphine treatment approaches. The report also encouraged the primary use of buprenorphine when opioids are appropriate for chronic pain. In October 2019, the HHS issued a guide for clinicians on how to appropriately reduce the dose for patients on long-term opioids. Within this guidance, it was noted that if patients on high opioid dosages are unable to taper despite worsening pain and/or function with opioids, clinicians should consider transitioning the patient to buprenorphine. The guide also noted that in addition to treating pain, buprenorphine has other properties that may be helpful, including less opioid-induced hyperalgesia and easier withdrawal than full mu-agonist opioids, and less respiratory depression than other long-acting opioids.
•Beginning in 2019, the Centers for Medicare and Medicaid Services adopted a soft edit of 90 MME per day for patients, aligning with the 2016 CDC Guideline recommendation. A medication soft edit can be used to alert the pharmacist to a potential safety risk for the patient, but can often be overridden after consulting with the prescriber.
Opioid Induced Constipation
Opioid analgesics are an important therapeutic option for patients with moderate-to-severe chronic pain. However, a common side-effect of opioid therapy is opioid-induced constipation, or OIC, which is characterized by reduced bowel movement frequency, increased straining, sensation of incomplete evacuation, and hard stools after the initiation of opioid therapy. Unlike many other opioid-related adverse effects, opioid-induced constipation does not subside over time. According to the 2018 American Gastroenterological Association Institute Guideline on the Medical Management of Opioid-Induced Constipation, OIC is estimated to affect 40% to 80% of patients taking chronic opioid therapy. One-third of patients with OIC report skipping, reducing, or stopping use of opioids-despite experiencing an increase in pain-in an effort to have a bowel movement.
Treatment Landscape for Opioid Induced Constipation
First-line treatment for opioid-induced constipation typically involves a combination of pharmacological and non-pharmacological interventions such as laxatives and increased dietary fiber. However, these approaches are associated with sub-optimal efficacy and do not address the underlying mechanism of OIC. OIC results from the specific effects of opioids on the gastrointestinal tract, differing mechanistically from other forms of constipation. Therefore, medical management of this disorder requires targeted treatment.
In 2010, Relistor injectable was approved by the FDA as the first peripherally acting mu-opioid receptor antagonist, or PAMORA, for the treatment of OIC in adults with chronic non-cancer pain. The PAMORA mechanism of action targets the underlying cause of OIC, selectively blocking opioid actions at peripheral μ-opioid receptors, including those in the enteric nervous system, without affecting analgesia in the central nervous system ("CNS"). In 2014, Movantik was the first oral PAMORA approved for the treatment of OIC, with the oral formulation of Relistor approved in mid-2016. In March 2017, Symproic was the third PAMORA approved for the treatment of OIC in adults with chronic non-cancer pain.
In addition to the PAMORA agents, Amitiza is also approved for the treatment of OIC in adults with chronic non-cancer pain. Amitiza is a chloride channel 2 activator in the gut, which increases intestinal fluid secretion and enhances transit through the gut without altering sodium and potassium serum concentrations.
In October 2018, the American Gastroenterological Association, or AGA, issued guidelines for the medical management of OIC to help reduce practice variation and promote high quality and high-value care for patients suffering from OIC. For patients in whom traditional laxative therapy results in sub-optimal symptom control, the AGA recommends the use of PAMORAs. Of the PAMORAs, Symproic is the only OIC therapy with a strong recommendation and high quality of evidence from the AGA. Due to insufficient evidence, the AGA did not issue a recommendation regarding the use of Amitiza in OIC.
In 2021, according to data from IQVIA (NSP & NPA), the PAMORA market totaled $373 million in annual sales. There were over 557,000 PAMORA prescriptions dispensed, a slight increase of 1% over 2020 despite the overall decline in opioid prescribing in the U.S.
Acute Migraine
An acute migraine is a general term for a migraine attack that occurs fewer than fifteen days a month. An acute migraine is also known as an episodic migraine. Migraine is a neurological condition that can cause multiple symptoms in addition to headache itself, including: nausea, vomiting, numbness or tingling, sensitivity to light and sound. The diagnosis of migraine is determined based on clinical history, reported symptoms and by ruling out other causes. Migraine attacks may include aura.
Treatment Landscape for Acute Migraine
Although there are several approved prescription medications for acute migraine, there remains a large unmet need as current therapies have limitations ranging from efficacy for a particular patient, to dosing, to side effects. Classes of some of the currently approved prescription therapies include analgesics, nonsteroidal anti-inflamatory drugs (NSAIDs), ergotamines, triptans, ditans, and calcitonin gene-related peptides. ELYXYB (celecoxib) oral solution is a selective COX-2 NSAID that may have the advantage of causing less gastrointestinal (GI) upset than the other approved NSAID for acute migraine, Cambia (diclofenac potassium).
In 2021, according to data from IQVIA (NSP & NPA), the acute migraine market totaled $2.8 billion in annual U.S. sales, with over 18.1 million prescriptions dispensed, an increase of over 8% from 2020.
Breakthrough Cancer Pain
Cancer patients often suffer from a variety of symptoms including pain as a result of their cancer or cancer treatment. Pain is a widely prevalent symptom in cancer patients, and an estimated 50% to 90% of those with cancer also suffer from what is referred to as breakthrough cancer pain, or BTCP. BTCP episodes have a rapid onset that peaks in three to five minutes and can last several minutes to an hour, and usually occur several times per day.
Treatment Landscape for Breakthrough Cancer Pain
BTCP can be difficult to treat due to its severity, rapid onset and the often unpredictable nature. Physicians typically treat BTCP with a variety of short-acting opioid medications, including morphine and transmucosal immediate-release formulations of fentanyl (TIRF). The use of TIRF products for breakthrough cancer pain has declined significantly over the past several years as clinicians have transitioned pain management for BTCP to non-fentanyl based therapies.
Opioid Dependence
Opioid dependence is a medical diagnosis that is characterized by the inability of an individual to stop using opioids, either prescription opioids such as morphine, hydrocodone and oxycodone, or illicit opioids such as heroin, even when it is in the best interest of the individual to do so. Opioid dependence is a complex medical condition that often requires long-term treatment and care. The treatment of opioid dependence is important to reduce both the associated health and social consequences and to improve the well-being and social functioning of people affected. According to the National Survey on Drug Use and Health, in 2019, 1.6 million people in the U.S. had an opioid use disorder.
Treatment Landscape for Opioid Dependence
Treatment with buprenorphine reduces the typical cravings and withdrawal symptoms associated with coming off opioid prescription painkillers and heroin. This allows the individual suffering from an addiction to opioids - along with counseling and support - to work toward recovery. On average, treatment lasts several months, reflecting relatively high dropout rates, but a significant number of people remain on buprenorphine treatment chronically, with nearly one-quarter of patients still on therapy after nine months.
Our BEMA Drug Delivery Technology
Our BEMA drug delivery technology consists of a small, bi-layered erodible polymer film for application to the buccal mucosa (the lining inside the cheek). BEMA films have the capability to deliver a rapid, reliable dose of drug across the buccal mucosa for time-critical conditions such as “breakthrough” cancer pain or in situations where gastrointestinal absorption of an oral drug is not practical or reliable, or in facilitating the administration of drugs with poor oral bioavailability.
We believe that the BEMA technology permits control of two critical factors allowing for better dose-to-dose reproducibility: (i) the contact area for mucosal drug delivery, and (ii) the time the drug is in contact with that area, known as residence time. In contrast to competing transmucosal delivery systems such as 1) lozenges, 2) buccal tablets and 3) matrix-based delivery systems placed under the tongue or sprayed in the oral cavity, BEMA products are designed to:
•adhere to buccal mucosa in seconds and dissolve in minutes;
•permit absorption without patients being required to move the product around in the mouth for absorption, thus avoiding patient intervariability;
•allow for unidirectional drug flow into the mucosa as a result of a backing layer on the side of the BEMA film facing into the patient’s mouth;
•provide a reproducible delivery rate, not susceptible to varying or intermittent contact with oral membranes; and
•dissolve completely, leaving no residual product or waste and avoiding patient removal, and the possibility for diversion or disposal of partially used product.
We currently own the BEMA drug delivery technology.
Sales and Market Overview of our Products
The following table summarizes the status of our marketed products:
Product/Formulation Indication Development Status Commercial Status
BELBUCA Management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate Approval: U.S. in October 2015; Canada in June 2017 BDSI markets in U.S.
Symproic The treatment of opioid-induced constipation in adult patients with chronic non-cancer pain Approval: U.S. in March 2017 BDSI markets in U.S.; licensed from Shionogi in April 2019
ELYXYB Ready-to-use oral solution for the acute treatment of migraine with or without aura in adults.
Approval: U.S. in May 2020 BDSI markets in U.S. as of February 2022
ONSOLIS/BREAKYL /PAINKYL (U.S./E.U./Taiwan trade names, respectively) Breakthrough cancer pain in opioid tolerant patients Approval: U.S. in July 2009; Canada in May 2010; E.U. in October 2010 and Taiwan in July 2013 Not marketed in the U.S. Partnership with Mylan in all regions except North America, Taiwan and South Korea; partnership with TTY in Taiwan.
The pharmaceutical industry and the therapeutic areas in which we compete are highly competitive and subject to rapid and substantial regulatory and technological changes. Developments by others may render our BEMA technology and marketed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market
factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.
There have been a number of companies developing products utilizing various thin film drug delivery technologies. While numerous over-the-counter pharmaceutical products have been brought to market in thin film formulations, few containing prescription products have been introduced in the U.S. Among the products to receive FDA approval are BELBUCA, BUNAVAIL, and ONSOLIS (BDSI), Suboxone film (Indivior PLC) and Zuplenz (Midatech Pharma PLC). Companies in the development and manufacture of thin film technologies include LTS, Lohmann Therapie-Systeme AG, ARx, LLC and Aquestive Therapeutics, Inc. (formerly known as MonoSol Rx LLC, or Aquestive). In addition, a number of companies are developing improved versions of existing products using oral dissolving, nasal spray, aerosol, sustained release injection and other drug delivery technologies. We believe that potential competitors are seeking to develop and commercialize technologies for buccal, sublingual or mucosal delivery of various therapeutics or groups of therapeutics. While our information concerning these competitors and their development strategy is limited, we believe our technology can be differentiated because the BEMA technology provides for a rapid and consistent delivery, high drug bioavailability and convenient use based on how the BEMA technology adheres to the buccal membrane and dissolves. Our clinical trials across a number of BEMA products have demonstrated that the technology is an effective means of drug delivery that is well tolerated and offers convenience to patients.
Since 2016, we have utilized our own sales force, which provides us with significantly more control over commercialization efforts and greater flexibility to accommodate future strategic options. We have left commercialization of our ONSOLIS product in ex-U.S. markets with partners. As of February 2022, BELBUCA, Symproic and ELYXYB are supported by a field force of approximately 147 sales representatives, 17 regional sales managers and three area directors.
BELBUCA (buprenorphine buccal film), CIII, for Chronic Pain
BELBUCA is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA on October 26, 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. BELBUCA is differentiated from other opioids and has the potential to address some of the most critical issues facing healthcare providers treating chronic pain with prescription opioids - abuse, misuse, addiction and the risk of overdose. As a Schedule III opioid, buprenorphine has less abuse and addiction potential compared to Schedule II opioids such as oxycodone, fentanyl, hydrocodone and morphine. Compared to currently marketed products and products under development, we believe that BELBUCA is differentiated based on the following features:
•strong and durable efficacy in both opioid naïve and opioid experienced patients;
•Schedule III designation by DEA, which indicates less abuse and addiction potential compared Schedule II opioids, which include oxycodone, hydrocodone and morphine;
•published studies have shown that buprenorphine’s physiologic effects reach a plateau, and this ceiling effect may result in a lower risk of overdose related respiratory depression;
•favorable tolerability with a low incidence of constipation and low discontinuation rate;
•flexible dosing options with seven available strengths; and
•buccal administration to optimize buprenorphine delivery.
Because of the safety, tolerability and efficacy benefits associated with buprenorphine, we believe that BELBUCA should be the first-line long-acting opioid for patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative treatments, such as non-opioids or immediate release opioids, are inadequate.
Additionally, in 2020 we completed a Phase I randomized, double-blind, double-dummy, 6-period, placebo-controlled, crossover study to compare the effects of BELBUCA and oral oxycodone hydrochloride (a full μ-opioid receptor agonist) on respiratory drive, as measured by the ventilatory response to hypercapnia (VRH) in healthy recreational opioid users. The Phase I study demonstrated that:
•BELBUCA did not reduce respiratory drive at any dose (300, 600, or 900 mcg);
•oxycodone resulted in a significant dose-dependent decrease in respiratory drive;
•significant increases in tidal volume were observed for BELBUCA at all doses relative to oxycodone 60mg;
•pupil diameter appeared to decrease with both BELBUCA and oxycodone; however maximum decrease from predose was observed 2 hours after administration of oxycodone 60 mg;
•blood plasma levels were similar among all BELBUCA doses and both oxycodone doses; and
•single doses of BELBUCA and single oral doses of 30 mg and 60 mg of oxycodone were generally safe and well tolerated.
To conclude, this first study comparing the effects of BELBUCA vs. a CII full mu-opioid agonist on respiratory drive confirms the better respiratory safety of BELBUCA over oxycodone hydrochloride:
•BELBUCA exhibited no impact on respiratory drive at any dose relative to placebo; and
•oxycodone demonstrated a dose-dependent decrease in respiratory drive.
The results of this study support, validate, and provide clinically-meaningful data beyond previous studies showing buprenorphine's ceiling effect on respiratory drive.
The primary results were presented at the annual meeting of the American Academy of Pain Medicine (AAPM) in National Harbor, MD, February 26 to March 1, 2020; additionally, the secondary outcomes were presented at PAINWeek 2020. Beyond nine abstracts which were submitted, accepted and presented at scientific congresses in 2020, four manuscripts were published in 2020 in key scientific journals.
We believe that there are long-term growth opportunities for BELBUCA and we focus our commercial efforts primarily on BELBUCA.
Our sales force is focused on current BELBUCA prescribers and clinicians we believe have the greatest opportunity to be adopters of BELBUCA, such as high prescribers of long-acting opioids, BuTrans/buprenorphine transdermal and/or HCPs who prescribe short acting opioids around-the-clock for patients with chronic pain. In parallel, we are heavily focused on ensuring market access for BELBUCA. As of January 2022, BELBUCA had formulary coverage for more than 90% of commercial lives. Approval rates within the commercial channel in 2021 were approximately 89%. BELBUCA also continued to have favorable approval rates of approximately 87% in Medicare Part D plans for the year.
In 2021, BELBUCA continued to have strong coverage with approximately 118 million lives having preferred access and around 250 million lives having access to BELBUCA across all channels . BELBUCA total prescriptions in 2021, according to IQVIA NPA, totaled over 471,000, an increase of 9% over 2020. BELBUCA's share of total buprenorphine prescriptions (products for the treatment of chronic pain only) for 2021 totaled 42%. In addition to a steady increase in BELBUCA prescription volume through 2021, there was also an increase in the use of higher doses of BELBUCA as healthcare providers continued to gain comfort titrating patients to higher optimal doses. In 2021, 52% of BELBUCA prescriptions were for doses of 450 mcg or greater, compared to 48% in 2020. Therefore, the weighted average price per prescription continued to increase in 2021.
Symproic (naldemedine), for Opioid Induced Constipation
Symproic was approved by the FDA on March 23, 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. Compared to currently marketed products and products under development, we believe that Symproic is differentiated based on the following features:
•strong and durable efficacy observed in randomized, double-blind, placebo controlled clinical trials of 12 week and 52 week duration in OIC patients;
•OIC relief that was more frequent, more complete, with less straining than patients taking placebo;
•recommended by the American Gastroenterological Association for patients with laxative refractory OIC;
•adverse event profile comparable to placebo, with low rates of abdominal pain observed across the phase III program; and
•the only prescription OIC medication with the convenience of once daily dosing, with only a tablet strength, and that can be taken with or without food and with or without laxatives.
Because of the durable efficacy, tolerability and convenience benefits, we believe that Symproic is a best-in-class PAMORA that reliably provides durable relief of OIC, which frees both the patient and the healthcare provider to focus on treating the patient’s chronic pain.
On April 4, 2019, we entered into an exclusive licensing agreement with Shionogi to commercialize Symproic in the U.S. and Puerto Rico for the treatment of OIC in adults with chronic non-cancer pain.
Symproic is a strong complementary product to BELBUCA, as patients requiring a PAMORA are by definition taking an opioid. Therefore, our sales force remains focused on high prescribers of long-acting opioids, BuTrans/buprenorphine transdermal and/or HCPs who prescribe short-acting opioids around-the-clock for patients with chronic pain.
In 2021, we also focused on increasing market access for Symproic. As of January 2022, Symproic had formulary coverage for over 90% of commercial lives. Approval rates within the commercial channel remained favorable throughout 2021 at about 82% and Medicare approval rates were above 67%.
In 2021, Symproic had approximately 108 million lives across the country with preferred access. Symproic total prescriptions in 2021, according to IQVIA NPA, totaled over 69,000, an increase of 2.5% over 2020. Symproic share of PAMORA prescriptions in 2021 totaled 12.5%.
ELYXYB (celecoxib oral solution) for acute treatment of migraine
In May, 2020 ELYXYB was approved by the FDA for the acute treatment of migraine with or without aura in adults. Compared to currently marketed products and products under development, we believe that ELYXYB is differentiated based on the following features:
•selective inhibition of COX-2 stops inflammation and pain while preserving important functions of COX-1;
•self-microemulsifying drug delivery system enables increased solubility, dissolution rate and bioavailability of celecoxib;
•ready to use premixed solution in a single-dose bottle;
•reaches Time to Maximum Plasma Concentration (Tmax) in 42 minutes;
•delivers pain relief within 1 hour;
•delivers pain freedom within 2 hours;
•most patients reached freedom from photophobia, phonophobia and nausea at hours post-dose;
•lower use of rescue medication;
•low incidence of GI side effects in clinical trials; and
•no drowsiness reported in clinical trials.
Because of these unique features, we believe that ELYXYB will redefine the acute treatment of migraine pain, allowing patients to achieve the migraine pain relief they desire.
On August 3, 2021 we entered into an asset purchase agreement with Dr. Reddy’s Laboratories Limited to acquire the U.S. and Canadian rights to ELYXYB, the only FDA-approved ready-to-use oral solution for the acute treatment of migraine, with or without aura, in adults. ELYXYB represents an excellent strategic fit for BDSI and a very attractive opportunity to diversify our product portfolio by expanding into the dynamic migraine market, deepening our presence in Neurology, a logical adjacency to our pain franchise.
ONSOLIS (fentanyl buccal soluble film) for Breakthrough Cancer Pain
In July 2009, ONSOLIS was approved for the management of breakthrough pain in cancer patients 18 years of age and older who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. ONSOLIS is indicated for the treatment of BTCP. ONSOLIS provides significant reduction in pain for patients suffering from BTCP in a convenient formulation with a range of doses to allow patients to titrate to an adequate level of pain control. We currently license ONSOLIS to TTY Biopharm Co., Ltd., or TTY, which markets the product as PAINKYL in Taiwan, and to Mylan N.V., which markets the product as BREAKYL in Europe.
Additional Overview Information
From our inception through December 31, 2021, we have recorded accumulated losses totaling approximately $256.0 million. Our historical operating losses have resulted principally from our prior research and development activities, including clinical trial activities for our products, sales, and general and administrative expenses. Ultimately, if we secure additional approvals from the FDA and other regulatory bodies throughout the world for other products that we may acquire or in-license in the future, our goal will be to augment our current sources of revenue and, as applicable, with sales of such products or royalties from such sales, on which we may pay royalties or other fees to our licensors and/or third-party collaborators as applicable.
We intend to materially finance our commercialization and distribution efforts and our working capital needs primarily through:
•commercializing our approved products such as BELBUCA, Symproic and ELYXYB;
•partnering with other pharmaceutical companies to assist in the distribution and commercialization of our products, for which we could expect to receive an upfront payment, milestones and/or royalty payments; and
•securing proceeds from public and private financings and other potential strategic transactions.
We have based our estimates of market size estimates, peak annual sales projections and similar matters described below and elsewhere in this Report on our market research, third party reports and publicly available information which we consider reliable. However, readers are advised our projected sales and similar metrics regarding BELBUCA, Symproic and ELYXYB are merely estimates and subject to many factors, many of which may be beyond our control, which will likely cause us to revise such estimates. Readers are also advised that our projected sales figures do not consider the royalties and other payments we will need to make to our licensors and strategic partners. Our estimates are based upon our management’s reasonable judgments given the information available and their previous experiences, although such estimates may not prove to be accurate.
Key Collaborative, Supply and Manufacturing Agreements
We are and have been a party to collaborative agreements with corporate partners, contractors, universities and government agencies. Our collaboration arrangements are intended to provide us with access to greater resources and scientific expertise in addition to our in-house capabilities. We also have supply arrangements with several of the key component producers of our delivery technology and we rely on third-party manufacturers and packagers to produce commercial product. Our collaborative, supply and manufacturing agreements include:
•ARx. Effective January 6, 2017, we assumed Endo’s agreement with ARx to supply BELBUCA laminate (bulk product). This agreement automatically renews for successive terms of one year each and currently covers minimum annual commitments for supply of bulk and finished product through 2027.
•Sharp. Effective January 6, 2017, we assumed Endo’s agreement with Sharp which covers annual commitments for supply of packaged BELBUCA finished product through 2022.
•Tapemark. Effective January 6, 2017, we assumed Endo’s agreement with The Tapemark Company, or Tapemark, to convert the BELBUCA laminate (bulk product) into individual dosage units which were then transferred to Sharp for secondary packaging and supply of BELBUCA finished product. Tapemark continued to provide such services for BELBUCA through 1st quarter of 2018 as we transitioned the converting and primary packaging operations for BELBUCA over to an alternate packaging site in 2018. Tapemark remains qualified to conduct converting, primary and finished goods packaging and release testing.
•Shionogi. Effective April 4, 2019, we entered into an agreement with Shionogi, Inc. pursuant to which Shionogi acts as a supplier of Symproic finished product. Including the agreement extension via two consecutive 6-month periods, our supply agreement with Shionogi currently runs until April 2022. In addition, we also entered into an agreement with UPM Pharmaceuticals (effective March 5, 2020 for a term of 5 years) and with Cardinal Health Packaging Solutions (effective July 28, 2020 for a term of 2 years with 1-year renewable periods) for purposes of utilizing their contract manufacturing and packaging services, respectively, for Symproic production.
•Contract Pharmaceuticals Limited Canada. Effective September 9, 2021, we assumed Dr. Reddy’s Laboratories Limited’s manufacturing and supply agreement with Contract Pharmaceuticals Limited Canada to manufacture and supply ELYXYB finished product. The initial term of the agreement runs until June 10, 2023. The agreement automatically renews for successive terms of two years each. The agreement covers annual commitments for the supply of ELYXYB finished product.
Relationship with CDC IV, LLC
On July 14, 2005, we entered into a Clinical Development and License Agreement, or CDLA, with the predecessor of CDC IV, LLC, or CDC IV, which provided funds to us for the development of ONSOLIS. Under the CDLA, as amended, we pay CDC IV a mid-single digit royalty, which shall not be less than $375,000 per quarter, on sales of ONSOLIS. The CDLA royalty term ends upon the latter of expiration of the patent for ONSOLIS or generic entry into any particular country, or the CDLA is terminated. We and CDC IV are also party to a Royalty Purchase and Amendment Agreement, or the RPAA, pursuant to which we pay CDC IV a 1% royalty on sales of BELBUCA. The RPAA royalty term shall terminate upon the earlier of (i) such time at which annual net sales of BUNAVAIL or BELBUCA equal less than $7.5 million in any calendar year following
the third (3rd) anniversary of initial launch of the product and CDC IV receives $18,750 in three (3) consecutive quarters as payment for CDC IV’s 1% royalty during such calendar year or (ii) upon the last commercial sale of BELBUCA anywhere in the world.
Licenses, Intellectual Property and Proprietary Information
Our intellectual property strategy is intended to maximize protection of our proprietary technologies and know-how and to further expand targeted opportunities by extension of our patents, trademarks, license agreements and trade secrets portfolio. In addition, an element of our strategic focus provides for varying specific royalty or other payment obligations by our commercial partners as our applicable intellectual property portfolio changes or business activity reaches certain thresholds.
However, patent positions of biotechnology and pharmaceutical organizations are uncertain and involve complex legal and technical issues. There is considerable uncertainty regarding the breadth of claims in patent cases which results in varied degrees of protection. While we believe that our intellectual property position is sound, it may be that our pending patent applications will not be granted or that our awarded claims may be too narrow to protect the products against competitors. It is also possible that our intellectual property positions will be challenged or that patents issued to others prior to our patent issuance may preclude us from commercializing our products. It is also possible that other parties could have or could obtain patent rights which may cover or block our products or otherwise dominate our patent position.
BEMA Technology
The drug delivery technology space is congested, although we do not believe that our BEMA products conflict with, are dominated by, or infringe any external patents and we do not believe that we require licenses under external patents for our BEMA based products in the U.S. It is possible, however, that a court of law in the U.S. or elsewhere might determine otherwise. If a court were to determine that we were infringing other patents and that those patents were valid, we might be required to seek one or more licenses to commercialize our products or technologies and we may be unable to obtain such licenses from the patent holders. If we were unable to obtain a license, or if the terms of the license were onerous, there may be a material adverse effect upon our business plan to commercialize these products.
On March 1, 2011, we were granted a patent extending the exclusivity of the BEMA drug delivery technology in Canada to 2027. The Canadian Patent No. 2,658,585 provides additional patent protection for ONSOLIS and BELBUCA. In April 2012, the USPTO granted US Patent No. 8,147,866, which will extend the exclusivity of the BEMA drug delivery technology for BELBUCA and BUNAVAIL in the U.S. from 2020 to 2027. In April 2014, the USPTO granted US Patent No. 8,703,177 (issued from US Patent Application No. 13/590,094), which will extend the exclusivity of the BEMA drug delivery technology for BUNAVAIL in the U.S. to at least 2032. In February 2018, we were granted US Patent No. 9,901,539, which will extend the exclusivity of the BEMA technology for BELBUCA in the U.S. to December 21, 2032.
We own various patents and patent applications relating to the BEMA technology. US Patent No. 6,159,498 (expiration date October 2016), US Patent No. 7,579,019 (expiration date January 22, 2020), US Patent No. 8,147,866 (expiration date July 23, 2027), US Patent 8,703,177 (expiration date August 20, 2032), US Patent 9,522,188 (expiration date April 24, 2035), US Patent 9,597,288 (expiration date July 23, 2027), US Patent 9,655,843 (expiration date July 23, 2027), US Patent 9,901,539 (expiration date December 21, 2032), Canadian Patent No. 2,658,585 (expiration date July 2027), EP2054031 (expiration date July 2027) and EP 0 973 497 (expiration date October 2017) are of particular value to our business and technology platform relating to the BEMA delivery technology. On February 16, 2010, we filed a complaint with the United States Federal District Court for the District of Columbia, requesting the USPTO be required to further extend the patent term for US 7,579,019 from 835 days to 1,191 days. In March 2011, we prevailed in this case, and the patent expiration date of US Patent No. 7,579,019 was extended from January 31, 2019 to January 22, 2020.
On January 22, 2014, Aquestive filed a Petition for Inter Partes Review, or IPR, on US Patent No. 7,579,019 with the USPTO. In the Petition, Aquestive is requesting an inter partes review because it is asserting that the claims of US Patent No. 7,579,019 are alleged to be unpatentable over certain prior art references. The USPTO instituted the IPR on the US Patent No. 7,579,019 (which we refer to as the ’019 Patent). The USPTO found all claims patentable and Aquestive filed a Request for Rehearing. On December 19, 2016, the PTAB issued a final decision denying Aquestive’s request for rehearing. Aquestive did not appeal this final decision.
Medical Affairs Initiatives
Beginning in late 2018, we transitioned from a research and development-oriented organization into one that is more commercially focused. As such, we expanded our medical affairs capabilities and honed our efforts toward maximizing our products in the market, particularly with BELBUCA and ELYXYB. While we continue to modify our capabilities to best educate and support the medical and scientific community, some enhancements include:
•strategically expanding our medical affairs department to include scientific communications, publications, and deeper medical expertise regarding clinical and Health Economic and Outcomes Research (HEOR) initiatives;
•developing robust medical affairs plans for BELBUCA, Symproic and ELYXYB, in order to define future clinical studies, publications, congress activities, and educational initiatives to deliver on the strategic imperatives in order to inform all stakeholders on the attributes of these products;
•proactively planning public policy initiatives and utilizing policy expertise in order to capitalize on federal and state tailwinds in chronic pain;
•continuing to progress post-marketing requirements (PMRs), for BELBUCA, Symproic, ELYXYB and BUNAVAIL; and
•providing regulatory, pharmacovigilance (PV), and drug safety support for BELBUCA, Symproic, ELYXYB, and ONSOLIS.
Our estimates of medical affairs initiatives, and our projected sales associated with each of our products discussed below and elsewhere in this Report are merely estimates and subject to multiple factors, many of which are, or may be beyond our control, including those detailed in the Risk Factors section of this Report. These factors and risks could cause delays, cost overruns or otherwise cause us to not achieve these estimates. Readers are also advised that our projected sales figures do not consider the royalties and other payments we will need to make to our licensors and strategic partners. Our estimates are based upon our market research and management’s reasonable judgments, but readers are advised that such estimates may prove to be inaccurate.
The following is a summary of our medical affair initiatives for our current products at December 31, 2021:
BELBUCA (buprenorphine buccal film). Following the transfer of BELBUCA to us in January 2017, we led clinical and Medical Affairs support behind BELBUCA. We have assumed responsibility for the conduct of post approval commitments specified by FDA in the approval of BELBUCA, which include a thorough QT (TQT) study and a pediatric study. In September 2013, the FDA announced that it will require all companies holding NDAs for extended-release/long-acting, or ER/LA opioid analgesic drug products to conduct four post-marketing studies regarding risks associated with their long-term use and one clinical trial to estimate risk of hyperalgesia. The FDA replaced the original requirements with new post-marketing requirements in February 2016. The Opioid PMR Consortium was formed with representatives from each of the member companies providing an opportunity for one set of studies to be completed to satisfy the FDA requirements and distributing the associated costs across all member companies. Each member company pays an equal share of the program costs and new members are required to pay equal share of the costs to date upon program entry and of future costs going forward. We joined the Opioid PMR Consortium in October 2017 and our initial share of the program cost was paid in late 2017. To date, seven of eleven studies have been completed and the program is expected to continue into 2022 and beyond. In addition, during the past year, we have completed all of our publications planned from our Phase 1 study which compared the effects of therapeutic doses of BELBUCA and oxycodone hydrochloride on respiratory drive in response to hypercapnia.
ELYXYB. Following the acquisition of ELYXYB in 2021, we have developed a robust medical affairs plan for 2022 and beyond. Included with this, we have assumed responsibility for the conduct of a post approval commitment of a pediatric study which will begin in 2022.
SYMPROIC. We continue to advance an FDA PMR which is an observational study to access the risk of major adverse cardiovascular events (MACE) in naldemedine users.
BUNAVAIL. Activities in 2017 included work to support a label expansion of BUNAVAIL for the induction (conversion to buprenorphine) of opioid dependent subjects, performance of FDA post-marketing study requirements and improvements in commercial manufacturing. In May 2017, we announced that the FDA expanded the BUNAVAIL label to include induction of opioid dependent patients. We discontinued all marketing of BUNAVAIL in June 2020, however the NDA remains active.
Government Regulation
The nonclinical and clinical development, manufacturing and marketing of any drug product is subject to significant regulation by governmental authorities in the U.S. and other countries. Complying with these regulations involves considerable time, expense and uncertainty.
In the U.S., drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our drugs. Drug development and approval within this regulatory framework is difficult to predict, requires several years and involves the expenditure of substantial resources. Moreover, ongoing legislation by Congress and
rulemaking by the FDA presents an ever-changing landscape where we could be required to undertake additional activities before any governmental approval to market our products is granted.
Risk Evaluation and Mitigation Strategy
In March 2008, new legislation designated as the Food and Drug Administration Amendments Act of 2007 (the FDAAA) took effect. This legislation strengthened the FDA’s authority over drug safety and directs the FDA to develop systems aimed at managing the risk-benefit ratio of a drug, with a particular focus on post-approval safety. FDAAA authorized the FDA to require and enforce a Risk Evaluation and Mitigation Strategy, or REMS, if the FDA determines that it is necessary to ensure that the benefits of a drug outweigh the potential risks. The legislation also provides the FDA with authority to require a REMS at any point in a drug product’s lifecycle based on new safety information.
A REMS is defined by the FDA as a strategy to manage a known or potential serious risk associated with a drug or biological product. The FDA’s assessment of whether to require a REMS as a condition for approval considers factors such as the size of the population likely to use the drug, the seriousness of the disease or condition that is to be treated by the drug, the expected benefit, and the seriousness of any known or potential adverse events that may be related to the drug. A REMS may be conveyed through the use of a number of tools including a Medication Guide for distribution when the drug is dispensed, a communication plan to physicians to convey potential risks, and elements to ensure safe use. These elements may include provisions that healthcare providers who prescribe the drug and pharmacists who dispense the drug have particular training, experience or special certifications; that the drug be dispensed only in certain healthcare settings; that the drug be dispensed to patients with evidence of safe-use conditions; and/or that patients must be enrolled in a registry. Under the FDAAA, the FDA has also been granted enforcement authority over violations of the REMS provisions. The FDA may impose civil monetary penalties, the drug or biological product can be deemed misbranded, and/or the FDA may obtain injunctive relief against further distribution of the product.
On December 29, 2011, the FDA approved a “class-wide” REMS program covering all transmucosal fentanyl products under a single risk management program. ONSOLIS is subject to this REMS, which includes a number of Elements to Assure Safe Use (ETASU).
Additionally, FDA has implemented a class-wide REMS covering all opioid analgesic drug products. The class-wide REMS includes a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA is subject to this REMS.
A REMS is also in place for buprenorphine for the treatment of opioid dependence. BUNAVAIL is included in this REMS, which includes a medication guide and healthcare professional and patient education.
The cost and implementation of all of these “shared system” REMS is shared among multiple companies that are required to participate by way of having an approved product that is subject to the particular REMS.
International Approval
Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country currently has its own procedures and requirements.
ONSOLIS (under different trade names and with a slightly different formulation) is approved in Europe and in Taiwan. In 2019, after learning that Purdue would no longer be marketing BELBUCA in Canada, BDSI requested that Purdue ask Health Canada to cancel its registration and approval there. BDSI has no plans at the moment to market BELBUCA outside of the U.S.
Other Regulation
In addition to regulations enforced by the FDA, we are also subject to U.S. regulation under the Controlled Substances Act, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state, local or similar foreign regulations. Although we believe that our safety procedures comply with the standards prescribed by state and federal regulations, the risk of injury cannot be completely eliminated. In the event of any accident, we could be held liable for any damages that result and any such liability could exceed our resources.
Human Capital Resources
As of March 7, 2022, we have 200 full-time employees. Of which, 154 handle our outside sales and training, 11 are involved in our medical affairs, clinical development program and regulatory, 22 handle our administration, finance, legal, human resources, operations, quality and supply chain management, and 13 handle our marketing and market access. Advanced degrees and certifications of our staff include one M.D., one PhD, four PharmDs, one CPA, twenty-one MBAs, twelve MSs, five MAs, one JD, one MPA, one MEDU and four RNs. None of our employees are covered by collective bargaining agreements. From time to time, we also employ independent contractors on a consulting basis or to support our administrative functions. We consider relations with all our employees to be in good standing. Each of our employees has entered into confidentiality, intellectual property assignment and non-competition agreements with us.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward employees by granting equity-based compensation awards to increase shareholder value and the success of our company by motivating employees to perform to the best of their abilities and achieve our corporate objectives.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (which we refer to herein as the Exchange Act), are filed with the SEC. Such reports and other information that we file with the SEC are available free of charge on our website at https://ir.bdsi.com/financials-filings when such reports are available on the SEC website. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the foregoing references to the URLs for these websites are intended to be inactive textual references only.

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ITEM 1A. RISK FACTORS
Item 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before purchasing our common stock, you should carefully consider the following risk factors as well as all other information contained in this Report, including our consolidated financial statements and the related notes. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.
Risks Relating to the Pending Transaction with Collegium
We may not complete the pending transaction with Collegium Pharmaceutical, Inc., or Collegium, within the time frame we anticipate, or at all, which could have an adverse effect on our business, financial results and/or operations.
On February 14, 2022, we entered into an agreement and plan of merger, which we refer to herein as the Merger Agreement, with Collegium and Bristol Acquisition Company Inc., a wholly owned subsidiary of Collegium, or Merger Sub. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, on February 18, 2022, Merger Sub commenced a cash tender offer, or the tender offer, to acquire all of the issued and outstanding shares of our common stock at a price per share of $5.60, in cash, subject to any applicable withholding taxes and without interest. Following the consummation of the tender offer, Merger Sub will merge with and into our company, with our company surviving as a wholly owned subsidiary of Collegium, and each issued and outstanding share of our common stock (other than shares of common stock held by us or our direct or indirect subsidiaries (including shares held in treasury), shares held by Collegium, Merger Sub or any of Collegium’s other direct or indirect wholly owned subsidiaries, shares validly tendered and irrevocably accepted for payment by Merger Sub in the tender offer and shares held by stockholders who are entitled to demand, and who properly demand, appraisal rights under Delaware law) will be converted into the right to receive $5.60 per share in cash, without interest and subject to any required tax withholding.
The completion of the transaction will be conditioned on (1) at least one share more than 50% of all issued and outstanding shares having been validly tendered into and not withdrawn from the tender offer, (2) the expiration or termination of any applicable waiting period (or any extension thereof) applicable to the tender offer and the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder, (3) the absence of any law or order that restrains, enjoins or otherwise prevents the consummation of the tender offer or the merger, (4) the Merger Agreement not being terminated in accordance with its terms, (5) there not being, since the date of the Merger Agreement, a
Material Adverse Effect (as defined in the Merger Agreement) and (6) other customary closing conditions set forth in Annex I to the Merger Agreement. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of our Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a Superior Offer (as defined in the Merger Agreement). As a result, we cannot assure you that the transaction with Collegium will be completed, or that, if completed, it will be exactly on the terms set forth in the Merger Agreement or within the expected time frame.
If the transaction is not completed within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the transaction will be completed. We could be required to pay Collegium a termination fee of approximately $18.1 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the transaction also may result in negative publicity and negatively affect our relationship with our stockholders, employees, collaborators, customers, vendors, regulators and other third parties. We may also be required to devote significant time and resources to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.
The announcement and pendency of the transaction with Collegium could adversely affect our business, financial results and/or operations.
Our efforts to complete the transaction could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the transaction will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with collaborators, vendors, customers, regulators and other business partners. For example, vendors, collaborators and other counterparties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to or termination of existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger Agreement.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities, generally requiring us to conduct our business in the ordinary course, consistent with past practice, and subjecting us to a variety of specified limitations absent Collegium’s prior consent. These limitations include, among other things, restrictions on our ability to acquire other businesses and assets, dispose of our assets, make investments, enter into certain contracts, repurchase or issue securities, hire or terminate employees (other than for cause), pay dividends, make capital expenditures, take certain actions relating to intellectual property, amend our organizational documents and incur indebtedness. These restrictions could prevent us from pursuing strategic business opportunities, taking actions with respect to our business that we may consider advantageous and responding effectively and/or timely to competitive pressures and industry developments, and may as a result materially and adversely affect our business, results of operations and financial condition.
In certain instances, the Merger Agreement requires us to pay a termination fee to Collegium, which could require us to use available cash that would have otherwise been available for general corporate purposes.
Under the terms of the Merger Agreement, we may be required to pay Collegium a termination fee of approximately $18.1 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. If the Merger Agreement is terminated under such circumstances, the termination fee we may be required to pay under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes and other uses. For these and other reasons, termination of the Merger Agreement could materially and adversely affect our business operations and financial condition, which in turn would materially and adversely affect the price of our common stock.
We have incurred, and will continue to incur, direct and indirect costs as a result of the pending transaction with Collegium.
We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the pending transaction. We must pay substantially all of these costs and expenses whether or not the transaction is completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.
Risks Relating to Our Business
We have incurred significant losses since inception and as such, you cannot rely upon our historical operating performance to make an investment decision regarding our company.
From our inception in January 1997 and through December 31, 2019, we recorded significant losses. Beginning in fiscal year ended 2020 we recorded net income. In the fiscal year ended December 31, 2021, we recorded net income of $84.9 million and our accumulated deficit at December 31, 2021 was approximately $256.0 million. As of December 31, 2021, we had working capital of approximately $119.7 million. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to effectively market and sell our products, secure and maintain payer access and manufacture our products to meet demand. We may be unable to achieve any or all of these goals consistently and there is no guarantee that we will continue to generate revenue in the future.
We have generated licensing-related revenue for ONSOLIS outside the US, and we have generated revenue from the commercial sales of our approved products, BELBUCA, in addition to generating revenue from the commercial sales of Symproic. In the case of BELBUCA, our approval initially generated milestone revenue from our prior commercial partner Endo. However, in January 2017, we re-acquired the commercialization rights for BELBUCA and are utilizing our internal sales force to sell our product. In the case of Symproic, we acquired rights to the product in April 2019, and commenced the commercial launch of the product using our own sales force shortly thereafter. We have also historically generated revenue from the commercial sale of BUNAVAIL however, in June 2020, we subsequently discontinued marketing for BUNAVAIL and do not expect to generate revenue from sales of BUNAVAIL in the future. In the case of ONSOLIS, as of the date of this report, we do not have any plans to launch ONSOLIS in the U.S.
If our competitors are successful in obtaining approval for Abbreviated New Drug Applications for products that have the same active ingredients as BELBUCA, Symproic or ELYXYB, sales of BELBUCA, Symproic or ELYXYB may be adversely affected.
Our competitors may submit for approval certain Abbreviated New Drug Applications, or ANDAs, which provide for the marketing of a drug product that has the same active ingredients in the same strengths and dosage form as a drug product already listed with the FDA, and which has been shown to be bioequivalent to such FDA-listed drug. Drugs approved in this way are commonly referred to as generic versions of a listed drug and can often be substituted by pharmacists under prescriptions written for an original listed drug. Any applicant filing an ANDA is required to make patent certifications to the FDA, such as certification to the FDA that the new product that is subject to the ANDA will not infringe an already approved product’s listed patents or that such patents are invalid (otherwise known as a Paragraph IV Certification).
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 in to settlement agreements with certain competitors, we are still pursuing litigation to defend against Patent IV Certifications related to BELBUCA. For more information, see Note 14, “Commitments and Contingencies” to our consolidated financial statements included in Part IV of this Report on Form 10-K. We believe that we will continue to be subject to ANDA-related litigation, which is costly and distracting and has the potential to impair the long-term value of our products.
We may need to raise additional funding to fund certain strategic initiatives. Depending on the nature of those initiatives, if we fail to obtain additional financing, we may be unable to continue to pursue certain initiatives.
We expect to spend substantial amounts of our financial resources on our commercialization efforts going forward. Our business currently generates revenue from product sales, and such current sources of revenue may not be sufficient to meet potential capital requirements to support such strategic priorities. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are unavailable, we may be required to delay, reduce the scope of, or eliminate one or more potential strategic opportunities.
Our long-term capital requirements are subject to numerous risks.
Our long-term capital requirements are expected to depend on many factors, including, among others:
•costs of developing sales, marketing and distribution channels and our ability to sell our products
•costs involved in preparing, filing, prosecuting, maintaining and enforcing (through litigation or other means) our patents, trademarks and other intellectual property;
•costs involved in expanding manufacturing capabilities for commercial quantities of our products;
•costs we may incur in acquiring new technologies or products;
•competing technological and market developments;
•market acceptance of our products;
•costs for recruiting and retaining employees and consultants; and
•legal, accounting, insurance and other professional and business-related costs.
We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources, which may have a material effect on our current or future business prospects.
Our term loan agreement with Pharmakon contains restrictions that limit our flexibility in operating our business. We may be required to make a prepayment or repay the outstanding indebtedness earlier than we expect under our loan agreement if a prepayment event or an event of default occurs, including a material adverse change with respect to us, which could have a materially adverse effect on our business.
Our agreement with Pharmakon contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
•incur additional indebtedness;
•enter into a merger, consolidation or certain changing of control events without complying with the terms of the loan agreement;
•change the nature of our business;
•change our organizational structure or type;
•amend, modify or waive any of our material agreements or organizational documents;
•grant certain types of liens on our assets;
•make certain investments;
•pay cash dividends; and
•enter into material transactions with affiliates.
The restrictive covenants of the term loan agreement could prevent us from pursuing business opportunities that we or our stockholders may consider beneficial. A breach of any of these covenants could result in an event of default under the term loan agreement. An event of default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under the term loan agreement occurs. In the case of a continuing event of default under the agreement, Pharmakon could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit, proceed against the collateral in which we granted Pharmakon a security interest under the term loan agreement and related agreements, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the term loan agreement are secured by all of our existing and future assets (excluding certain intellectual property).
We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to make any required prepayment or repay such indebtedness at the time any such prepayment event or event of default occurs. In such an event, we may be required to delay, limit, reduce or terminate our commercialization efforts or grant to others rights to market our products that we would otherwise prefer to develop and market ourselves. Our business, financial condition and results of operations could be materially adversely affected as a result.
Social issues around the abuse of opioids, including law enforcement and other legal concerns over diversion of opioids and regulatory efforts to combat abuse, misuse and addiction, could impact the potential market for BELBUCA.
Opioid abuse in the U.S. is a significant healthcare issue, and the active ingredient in BELBUCA is an opioid. Media reports regarding prescription drug abuse and the diversion of opioids and other controlled substances are commonplace. Law enforcement and regulatory agencies have and will likely continue to apply policies and guidelines that seek to limit the availability or use of opioids. In addition, federal, state and local governments have and may enact legislation or executive orders with similar goals. State and local governments have also taken legal action against opioid manufacturers to recoup alleged damages arising out of the abuse and misuse of opioids. Such efforts have challenged and could inhibit our ability to successfully market BELBUCA.
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 drug abusers to discover previously unknown ways to abuse opioid drugs; 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 business. Additionally, there may be continued reluctance of some regulators and third-party payers to pay a premium for abuse-deterrent formulations of opioids or opioids such as BELBUCA with less abuse and addiction potential compared to Schedule II opioids. These factors could reduce the potential size of the market for BELBUCA and decrease the revenues we are able to generate from its sale.
Efforts by the FDA and other regulatory bodies to combat abuse of opioids may negatively impact the market for BELBUCA. For example, in February 2016, the FDA released an action plan to address the opioid abuse epidemic and reassess the FDA’s approach to opioid medications. The plan identifies FDA’s focus on implementing policies to reverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s plan include strengthening post marketing study requirements to evaluate the benefit of long-term opioid use, changing the REMS requirements to provide additional funding for physician education courses, releasing a draft guidance setting forth approval standards for generic-abuse deterrent opioid formulations, and seeking input from the FDA’s Scientific Board to broaden the understanding of the public risks of opioid abuse. The FDA’s Scientific Advisory Board met to address these issues on March 1, 2016. The FDA’s plan is part of a broader initiative led by the HHS to address opioid-related overdose, death and dependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resources to address opioid over-prescribing, increasing use and development of improved delivery systems for naloxone, which can reverse overdose from both prescription opioids and heroin, to reduce overdose-related deaths, and expanding the use of Medication-Assisted Treatment, which couples counseling and behavioral therapies with medication to address substance abuse. Also, as part of this initiative, the CDC has launched a state grant program to offer state health departments resources to assist with abuse prevention efforts, including efforts to track opioid prescribing through state-run electronic databases. In March 2016, as part of the HHS initiative, the CDC released a new Guideline for Prescribing Opioids for Chronic Pain. The guideline is intended to assist primary care providers treating adults for chronic pain in outpatient settings. The guideline provides recommendations to improve communications between doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety and effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline does not specifically address the use of buprenorphine for chronic pain or make treatment recommendations about the use of abuse-deterrent opioids.
In June 2017, the FDA requested that Endo Pharmaceuticals, Inc. remove Opana ER (oxymorphone), from the market based on concerns that the benefits of the drug may no longer outweigh its risks. This was the first time the agency took steps to remove a currently marketed opioid pain medication from sale due to the public health consequences of abuse. The FDA’s decision was based on a review of all available post-marketing data, which demonstrated a significant shift in the route of abuse of Opana ER from nasal to injection following the product’s reformulation.
In September 2017, the CDC removed the MME conversion factors for buprenorphine from its online oral MME data file. And, in 2018, it included a statement in the MME data file noting “Buprenorphine doses are not expected to be associated with overdose risk in the same dose-dependent manner as doses for full agonist opioids.”
In May 2019, the Health and Human Services Pain Management Best Practices Inter-Agency Task Force issued their Final Report on Pain Management Best Practices: Updates, Gaps, Inconsistencies, and Recommendations. The report identified that one of the barriers in pain management best practices “includes lack of coverage and reimbursement for buprenorphine as well as the lack of education and training on the proper usage of buprenorphine. There has been a lack of access to buprenorphine treatment for chronic pain.” The report then makes recommendations that third-party payers should provide coverage and reimbursement for buprenorphine treatment approaches. The report also encouraged the primary use of buprenorphine when opioids are appropriate for chronic pain. In October 2019, the HHS issued a guide for clinicians on how to appropriately reduce the dose for patients on long-term opioids. Within this guidance, it was noted that if patients on high opioid dosages are unable to taper despite worsening pain and/or function with opioids, clinicians should consider transitioning the patient to buprenorphine. The guide also noted that in addition to treating pain, buprenorphine has other properties that may be helpful, including less opioid-induced hyperalgesia and easier withdrawal than full mu-agonist opioids, and less respiratory depression than other long-acting opioids.
In addition, at least 49 U.S. states and many cities and counties have filed civil suits or instituted other proceedings against opioid manufacturers and wholesalers of opioid drugs seeking damages under various claims for contributing to the opioid crisis. Such litigations could further damage the market for opioid products like BELBUCA. To the extent our company is named in such lawsuits, we could be required to participate in the settlement of such litigations or the payment of damages, which could divert our management’s attention from our business, deplete our financial resources, and damage our reputation.
Government agencies may establish and promulgate usage guidelines that could limit the use of our products and drug candidates.
National and state level government agencies, professional and medical societies, and other groups may establish usage guidelines that apply to our products and drug candidates. These guidelines could address such matters as usage and dose,
among other factors. Application of such guidelines could limit the clinical use or commercial appeal of our products or drug candidates.
As such, in 2019, the Centers for Medicare and Medicaid Services adopted a soft edit of 90 MME per day for patients, aligning with the 2016 CDC Guideline recommendation. A medication soft edit can be used to alert the pharmacist to a potential safety risk for the patient, but can often be overridden after consulting with the prescriber.
If we are unable to convince physicians as to the benefits of our products, we may incur delays or additional expense in our attempt to establish market acceptance.
Use of our products will require physicians to be informed regarding the intended benefits of our products. The time and cost of such an educational process may be substantial. Inability to carry out this physician education process may adversely affect market acceptance of our proposed formulations or products. We may be unable to timely educate physicians regarding our intended pharmaceutical formulations or products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our formulations or products. Nonetheless, even with our best efforts, certain physicians may never prescribe our product.
We have been and expect to be significantly dependent on our collaboration agreements for the manufacturing of our products, which expose us to the risk of reliance on the performance of third parties.
In conducting our operations, we currently rely, and expect to continue to rely, on numerous collaborative agreements with third parties such as manufacturers, commercial partners, governmental agencies and not-for-profit organizations for both strategic and financial resources.
The termination of these relationships, or failure to perform by us or our partners (who are subject to regulatory, competitive and other risks) under their applicable agreements or arrangements with us, or our failure to secure additional agreements for our products, would substantially disrupt or delay our development activities. Any such loss would likely increase our expenses and materially harm our business, financial condition and results of operation.
We depend upon key personnel who may terminate their employment with us at any time.
Our ability to achieve our corporate objectives will depend to a significant degree upon the continued services of key management, particularly our senior executive officers. Our management and other employees may voluntarily terminate their employment with us at any time. The loss of the services of these or other key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to loss of sales and diversion of management resources. In addition, we depend on our ability to attract and retain other highly skilled personnel. Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable to recruit such personnel on a timely basis, if at all, which would negatively impact our commercialization programs. Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals.
We may be unable to manage our growth effectively.
Our business strategy involves growth and expansion as we continue our evolution as a fully integrated specialty pharmaceutical company. As we in-license or acquire additional product candidates, we will likely have to expand existing operations to increase our contract manufacturing capabilities, hire and train new personnel to handle the marketing and sales of our products and assist patients in obtaining reimbursement for the use of our products. We may also need to grow to support our commercial activities for BELBUCA, Symproic and the recent launch of ELYXYB. This growth may place significant strain on our management, financial and operational resources. Successful growth is also dependent upon our ability to implement appropriate financial and management controls, systems and procedures. Our ability to effectively manage growth depends on our success in attracting and retaining highly qualified personnel, for which the competition may be intense. If we fail to manage these challenges effectively, our business could be harmed.
We are exposed to product liability and, non-clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. It is possible that such claims could be asserted against us at some point. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We currently have a general liability/product liability policy which includes coverage for our commercially marketed products. Annual aggregate limits include $2 million for general liability, with $1 million for each occurrence, with umbrella
liability in the amount of an additional $5 million aggregate and $5 million per occurrence; product liability is $10 million for aggregate and $10 million per occurrence. It is possible that this coverage will be insufficient to protect us from future claims. Under our agreements, our partners are required to carry comprehensive general product liability and tort liability insurance, each in amounts not less than $2 million per incident and $2 million annual aggregate and to name us as an additional insured thereon. However, we or our commercial partners may be unable to obtain or maintain adequate product liability insurance on acceptable terms, if at all, and there is a risk that our insurance will not provide adequate coverage against our potential liabilities. Furthermore, our current and potential partners with whom we have collaborative agreements, or our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient assets to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us or our partners could have a material adverse effect on our business, financial condition and results of operations.
Moreover, product liability insurance is costly, and due to the nature of the pharmaceutical products underlying BELBUCA, Symproic, ONSOLIS and ELYXYB, we or our partners may not be able to obtain such insurance, or, if obtained, we or our partners may not be able to maintain such insurance on economically feasible terms. If a product related action is brought against us, or liability is found against us prior to our obtaining product liability insurance for any product, or should we have liability found against us for any other matter in excess of any insurance coverage we may carry, we could face significant difficulty continuing operations.
We are presently a party to lawsuits by third parties who claim that our products, methods of manufacture or methods of use infringe on their intellectual property rights, and we may be exposed to these types of claims in the future.
We are presently, and may continue to be, exposed to litigation by third parties based on claims that our technologies, processes, formulations, methods, or products infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in pharmaceutical patents is, in most instances, uncertain and highly complex. Any litigation or claims against us, whether or not valid, would result in substantial costs, could place a significant strain on our financial and human resources and could harm our reputation. Such a situation may force us to do one or more of the following:
•incur significant costs in legal expenses for defending against an intellectual property infringement suit;
•cease selling, making, importing, incorporating or using one or more or all of our technologies and/or formulations or products that incorporate the challenged intellectual property, which would adversely affect our revenue;
•obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or
•redesign our formulations or products, which would be costly and time-consuming.
With respect to our BEMA delivery technology, the thin film drug delivery technology space is highly competitive. There is a risk that a court of law in the U.S. or elsewhere could determine that one or more of our BEMA based products conflicts with or covered by external patents. This risk presently exists in our litigation with Aquestive Therapeutics, Inc. (formerly known as MonoSol Rx LLC, or Aquestive) relating to our BELBUCA product which was filed in January 2017. If the courts in these cases were to rule against us and our partner in these cases, we could be forced to license technology from Aquestive or be prevented from marketing BELBUCA, or otherwise incur liability for damages, which could have a material adverse effect on our ability for us or our partners to market and sell BELBUCA.
We have been granted non-exclusive license rights to European Patent No. 949 925, which is controlled by LTS to market BELBUCA and ONSOLIS within the countries of the European Union. We are required to pay a low single digit royalty on sales of products that are covered by this patent in the European Union. We have not conducted freedom to operate searches and analyses for our other proposed products. Moreover, the possibility exists that a patent could issue that would cover one or more of our products, requiring us to defend a patent infringement suit or necessitating a patent validity challenge that would be costly, time consuming and possibly unsuccessful.
Our lawsuits with Aquestive and Indivior have caused us to incur significant legal costs to defend ourselves, and we would be subject to similar costs if we are a party to similar lawsuits in the future Furthermore, if a court were to determine that we infringe any other patents and that such patents are valid, we might be required to seek one or more licenses to commercialize our BEMA products. We may be unable to obtain such licenses from the patent holders, which could materially and adversely impact our business.
If we are unable to adequately protect or enforce our rights to intellectual property or secure rights to third-party patents, we may lose valuable rights, experience reduced market share, assuming there is any market share, or incur costly litigation to, enforce, maintain or protect such rights.
Our ability to license, enforce and maintain patents, maintain trade secret protection and operate without infringing the proprietary rights of others will be important to our commercializing any formulations or products under development. The current and future development of our drug delivery technologies is contingent upon whether we are able to maintain licenses and access patented technologies. Without these licenses, the use of technologies would be limited and the sales of our products could be prohibited. Therefore, any disruption in access to the technologies could substantially delay the development and sale of our products.
The patent positions of biotechnology and pharmaceutical companies, including ours, which involve licensing agreements, are frequently uncertain and involve complex legal and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, our patents, patent applications and licensed rights may not provide protection against competitive technologies or may be held invalid if challenged or could be circumvented. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, or licensed by, us. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as U.S. law.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements provide that materials and confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances and assign the ownership of relevant inventions created during the course of employment to us. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer, or otherwise gain access to our proprietary technology. We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patented technology.
In addition, we may have to resort to costly and time consuming litigation to protect or enforce our rights under certain intellectual property, or to determine their scope, validity or enforceability. Enforcing or defending our rights could be expensive, could cause significant diversion of our resources and may not prove successful. Any failure to enforce or protect our rights could cause us to lose the ability to exclude others from using our technologies to develop or sell competing products.
We are dependent on third party suppliers for key components of our delivery technologies and products.
We rely on certain materials used in our development and third-party manufacturing processes, most of which are procured from five contract manufacturers and three active pharmaceutical ingredient (“API”) suppliers for BELBUCA and Symproic. We purchase our pharmaceutical ingredients pursuant to long-term supply agreements with a limited number of suppliers. The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the development or commercialization process and thereby adversely affect our operating results. In addition, a disruption in the commercial supply of or a significant increase in the cost of the API from any of these sources could have a material adverse effect on our BELBUCA and Symproic business, which would affect our financial position and results of operations.
In 2020, we utilized only one contract manufacturer to create the BELBUCA laminates and an additional two contract manufacturer to package the laminates into final product. We utilize two contract manufacturers to create the Symproic tablets and only one contract manufacturer to package the tablets into final product. We have made significant progress during 2021 in developing additional secondary suppliers for all products. Although we have long term supply agreements with these vendors, any problems or regulatory issues at any of these vendors could create significant BELBUCA and Symproic supply delays. The reliance on a sole or limited number of suppliers could result in:
•delays associated with development and non-clinical and clinical trials due to an inability to timely obtain a single or limited source component;
•inability to timely obtain sufficient quantities of API and an adequate supply of required components; and
•reduced control over pricing, quality and timely delivery.
Our relationships with our manufacturers and suppliers are particularly important to us and any loss of or material diminution of their capabilities due to factors such as regulatory issues, accidents, acts of God, extreme weather events, pandemics, labor issues and strikes, or any other factor beyond our reasonable control would have a material adverse effect on our company. Any loss of or interruption in the supply of components from our suppliers or other third-party suppliers would require us to seek alternative sources of supply or require us to manufacture these components internally, which we are currently not able to do.
If the supply of any components is lost or interrupted, API, product or components from alternative suppliers may not be available in sufficient quality or in volumes within required time frames, if at all, to meet our or our partners’ needs. This
could delay our ability to complete clinical trials, obtain approval for commercialization or commence marketing or cause us to lose sales, force us into breach of other agreements, incur additional costs, delay new product introductions or harm our reputation. Furthermore, product or components from a new supplier may not be identical to those provided by the original supplier. Such differences could have material effects on our overall business plan and timing, could fall outside of regulatory requirements, affect product formulations or the safety and effectiveness of our products that are being developed.
There are risks associated with our reliance on third parties for managed care, distribution infrastructure and channels.
We have entered into agreements with commercial partners to engage in marketing and distribution efforts around our products. We may be unable to establish or maintain third-party relationships on a commercially reasonable basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors.
We may be unable to continue to engage qualified distributors. Even if engaged, these distributors may:
•fail to satisfy financial or contractual obligations to us;
•fail to adequately market our formulations or products;
•cease operations with little or no notice to us; or
•offer, design, manufacture or promote competing formulations or products.
If we fail to develop sales, managed care, marketing and distribution channels, we would experience delays in generating sales and incur increased costs, which would harm our expected financial results.
The class-wide Risk Evaluation and Mitigation Strategy, or REMS, for all transmucosal fentanyl products, and similar programs for other narcotic products, may slow sales and marketing efforts for products that contain narcotics, which could impact our royalty and sales revenue from such products.
Our approved product ONSOLIS is formulated with the potent narcotic fentanyl. On December 29, 2011, FDA approved a REMS program covering all transmucosal fentanyl products. The program, which is referred to as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, was designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl product, and while patients are on treatment, to ensure appropriate use. The approved program covers all approved transmucosal fentanyl products under a single program and was implemented in March 2012. Additionally, the FDA has implemented a class-wide REMS covering the extended release and long acting opioid class. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA falls within the existing class-wide REMS program. The cost and implementation of the extended release and long-acting opioid REMS is shared among multiple companies in the category.
Our business and operations could suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors, and consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. System failures, accidents, or security breaches could cause interruptions in our operations, and could result in a material disruption of our commercialization activities, and our business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of any product could be delayed.
Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.
Activist investors may attempt to effect changes in our strategic direction and how our company is governed or may seek to acquire control over our company. Some investors (commonly known as “activist investors”) seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. Activist campaigns can also seek to change the composition of our board of directors, and campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board of directors and senior management from the
pursuit of our business strategies. In addition, perceived uncertainties as to our future direction that can arise from potential changes to the composition of our board of directors sought by activists may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could divert our management’s attention from our business or cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business, all of which could have a material adverse effect on our company.
COVID-19 may materially and adversely affect our business and our financial results.
The COVID-19 pandemic has adversely impacted our operations, including our efforts to market BELBUCA and Symproic. Any decrease in sales or interruption in supply of any of our products could increase our operating expenses and have a material adverse effect on our business and financial results.
In addition, COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions, social distancing and business shutdowns. We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all home-office employees to work remotely. We have suspended non-essential travel worldwide for our employees and are discouraging employee attendance at other gatherings. These measures could negatively affect our business, although to date that has not been the case. For instance, temporarily requiring all employees to work remotely may induce absenteeism, disrupt our operations or increase the risk of a cybersecurity incident. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all.
The extent to which COVID-19 will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the severity of COVID-19 or the effectiveness of actions to contain and treat COVID-19, including vaccination programs, particularly in the geographies where we or our third party suppliers and contract manufacturers or contract research organizations operate. If we or any of the third parties with whom we engage experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operations and financial condition.
Risks Related to Regulation
Our failure to obtain government approvals or to comply with ongoing governmental regulations relating to our technologies could delay or limit introduction of any proposed formulations and products and result in failure to achieve revenues or maintain our ongoing business.
The manufacture and marketing of our products are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the U.S. and abroad. Before receiving FDA or foreign regulatory clearance to market our proposed formulations and products, we will have to demonstrate that our formulations and products are safe and effective in the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve material revenues.
The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of healthcare may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and state government initiatives directed at lowering the total cost of healthcare, the U.S. Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals and related laws, rules and regulations could materially harm our business, financial conditions, results of operations or stock price. Moreover, the passage of the Patient
Protection and Affordable Care Act in 2010, and efforts to amend or repeal such law, has created significant uncertainty relating to the scope of government regulation of healthcare and related legal and regulatory requirements, which could have an adverse impact on sales of our products.
The ability of our company to commercialize BELBUCA, Symproic, ELYXYB, or any partners with which we have a licensing arrangement to sell ONSOLIS, will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations and products and related treatments are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Consumers and third-party payers are increasingly challenging the prices charged for drugs and medical services. Also, the trend toward managed healthcare in the U.S., which could control or significantly influence the purchase of healthcare services and drugs, as well as legislative proposals to reform healthcare or reduce government insurance programs, may all result in lower prices for or rejection of our drugs.
Our business involves environmental risks related to handling regulated substances which could severely affect our ability to develop our drug delivery technology.
In connection with the manufacture of materials and products, we and our partners are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We and our partners may be required to incur significant costs to comply with environmental and health and safety regulations in the future. The activities of our manufacturing and commercial partners, both now and in the future, may involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and narcotics. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.
Government and other efforts to reform the healthcare industry could have adverse effects on our company, including the inability of users of our current and future approved products to obtain adequate reimbursement from third-party payers, which could lead to diminished market acceptance of, and revenues from, such products.
Our ability to commercialize BELBUCA, Symproic, and ELYXYB alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for the product will be available from:
•government and health administration authorities;
•private health maintenance organizations and health insurers; and
•other healthcare payers.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our products may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
Furthermore, we cannot predict what actions the Biden administration will implement in connection with the Affordable Care Act. However, it is possible that such initiatives could have an adverse effect on our ability to successfully commercialize products in the United States in the future. For example, any changes that reduce, or impede the ability to obtain, reimbursement for the type of products we intend to commercialize in the United States or reduce medical procedure volumes could adversely affect our business plan to introduce our products in the United States.
In addition, we are subject to the Federal Drug Supply Chain Security Act of 2013, or the DSCSA. The U.S. government has enacted DSCSA which requires development of an electronic product tracking and tracing of each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. Compliance with DSCSA and future U.S. federal or state electronic requirements may increase our operational expenses and impose significant administrative burdens.
It remains to be seen whether these orders and resulting regulations will remain in force during the Biden Administration.
We may also be subject to healthcare laws, regulation and enforcement. Our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
We may also be subject to several healthcare regulations and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate include:
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information;
•the federal healthcare programs’ Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
•federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
•federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and
•state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
Risks Related to Our Common Stock and Non-Voting Convertible Preferred Stock
Our stock price is subject to market factors and market volatility, both generally and with respect to our industry and our company specifically. As such, there is a risk that your investment in our common stock could fluctuate in value.
The overall market for securities in recent years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies. In particular, the market prices of securities of biotechnology and pharmaceutical companies have been extremely volatile and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations (as well as market reactions to particular developments with our company) have and could continue to result in extreme fluctuations in the price of our common stock, which could cause a decline in the value of our common stock. These fluctuations, as well as general economic and market conditions, may have a material and/or adverse effect on the market price of our common stock.
Additional authorized shares of our common stock and preferred stock available for issuance may adversely affect the market for our common stock.
As of March 7, 2022, there are 106,494,480 shares of common stock issued and 103,228,796 shares of common stock outstanding.
On July 23, 2020, our stockholders approved an amendment to our certificate of incorporation to increase the number of authorized shares of common stock, par value $0.001, of our common stock from 175,000,000 to 225,000,000 shares. This increase in our authorized shares of common stock provides us with the flexibility to issue more shares in the future, which might cause dilution to our stockholders. In addition, the total number of shares of our common stock issued and outstanding does not include shares reserved in anticipation of the exercise of outstanding options or warrants. To the extent such options (including options under our stock incentive plan) or warrants are exercised, the holders of our common stock may experience further dilution.
Additionally, we have an effective shelf registration which registered up to $125 million of our securities for potential future issuance. To the extent we issue such shares of stock under this registration statement, the current holders of our common stock may experience further dilution.
Anti-takeover provisions under our organizational documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation, as amended, our amended and restated bylaws and Delaware law contain provisions that may have the effect of preserving our current management, such as:
•authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
•limiting the ability of stockholders to call special meetings of stockholders;
•permitting stockholder action by written consent;
•establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
•requiring a super-majority vote of our stockholders to remove directors of our company; and
•providing that our stockholders may only remove our directors for “cause” (as defined in our bylaws).
These provisions affect your rights as a stockholder since they permit our board of directors to make it more difficult for common stockholders to replace members of the board or undertake other significant corporate actions. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace our current management team.
Our bylaws designate specific courts in as the exclusive forum for certain litigation that may be initiated by the Company’s stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for state law claims for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders; (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (5) any action asserting a claim governed by the internal affairs doctrine (the “Delaware Forum Provision”). The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
The Delaware Forum Provision and the Federal Forum Provision in our bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and employees, even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
The financial and operational projections that we may make from time to time are subject to inherent risks.
The projections that our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, production and supply dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There may be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections in (or incorporated by reference in) this Report should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.
We do not intend to pay dividends on our common stock.
We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends for the foreseeable future. Additionally, the merger agreement with Collegium generally restricts our ability to pay any dividends on our common stock during the interim period between the execution of the merger agreement and the completion of the transaction (or the date on which the merger agreement is earlier terminated). Therefore, you should not invest in our common stock with the expectation that you will receive dividends.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Description of Property.
Refer to Note 2, "Leases" to our consolidated financial statements included in Part IV of this Report on Form 10-K, which is incorporated into this item by reference.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
Refer to Note 14, "Commitments and Contingencies" to our consolidated financial statements included in Part IV of this Report on Form 10-K, which is incorporated into this item by reference.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Beginning November 1, 2019, our common stock is listed for quotation on the NASDAQ Global Select Market under the symbol “BDSI”. Prior to November, our common stock was listed on the NASDAQ Capital Market.
As of March 7, 2022, we had approximately 133 holders of record of our common stock. No cash dividends have been paid on the common stock to date. We currently intend to retain earnings for further business development and do not expect to pay cash dividends in the foreseeable future.
Performance Graph
The following graph shows a comparison of the five-year total cumulative returns of an investment of $100 in cash on December 31, 2016 in (i) our common stock (ii) the Nasdaq Composite Index (iii) the Nasdaq Global Select Index (iv) the Nasdaq Biotechnology Index and (v) the NYSE Pharmaceutical Index. All values assume reinvestment of the full amount of all dividends (to date, we have not declared any dividends).
This stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”). Comparison of cumulative total return on investment since December 31, 2016:
12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021
BioDelivery Sciences Int’l, Inc. $ 100.00 $ 168.57 $ 211.43 $ 361.14 $ 240.00 $ 177.14
Nasdaq Composite (U.S. Companies) 100.00 128.24 123.26 166.68 239.42 290.63
Nasdaq Global Select 100.00 128.43 123.71 167.75 239.95 295.43
Nasdaq Biotechnology 100.00 121.06 109.77 136.56 171.64 170.55
NYSE Pharmaceutical 100.00 113.16 118.12 135.74 143.17 171.79
Unregistered Sales of Equity Securities and Use of Proceeds
None
Issuer Purchases of Equity Securities
None
On November 4, 2020, our Board of Directors authorized the repurchase of up to $25 million of our Company's shares of Common Stock. The timing and amount of any shares purchased on the open market is determined based on our evaluation of market conditions, share price and other factors. We have utilized and plan to utilize existing cash on hand to fund the share repurchase program.
During the year ended December 31, 2021, a cumulative total of 3,202,690 shares, priced at $3.69 for a value of $11.8 million were repurchased and recorded as Treasury Stock in the 2021 consolidated balance sheet. During the three months ended December 31, 2021, no shares were repurchased by the Company under its repurchase program. Pursuant to the Merger Agreement (as defined below), our Company is not allowed to repurchase any of our shares of capital stock.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
The statements of operations data and statements of cash flows data for the years ended December 31, 2021, 2020 and 2019 and the balance sheet data as of December 31, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The statements of operations data and statements of cash flows data for the years ended December 31, 2018 and 2017 and the balance sheet data as of December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements not included in this annual report. The following selected financial data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements and related notes beginning on page and other financial information included in this Report.
2021 2020 2019 2018 2017
Statements of Operations Data:
Total revenue (1) $ 166,703 $ 156,471 $ 111,389 $ 55,640 $ 61,985
Operating income (loss) 37,124 32,979 3,736 (23,648) (29,420)
Net income (loss) (2) (3) 84,860 25,711 (15,305) (46,367) 5,285
Diluted net income (loss) per share 0.82 0.24 (0.18) (0.73) 0.09
Balance Sheet Data:
Cash, short-term and long-term investments $ 114,309 $ 111,584 $ 63,888 $ 43,822 $ 21,195
Total assets (4) 324,596 239,894 182,905 108,533 88,101
Long-term liabilities 54,396 78,665 59,148 57,252 53,075
Accumulated deficit (256,022) (340,882) (366,593) (351,288) (305,056)
Total stockholders’ equity 187,822 108,234 69,764 29,742 8,877
Statements of Cash Flows Data:
Net cash flows from operating activities $ 41,037 $ 24,981 $ 11,072 $ (24,113) $ (32,451)
(1)Total revenue in 2017 includes $20 million in contract revenue from Endo related to a patent extension that was previously recorded as deferred revenue because all or a portion of such $20 million was contingently refundable to Endo if a third party generic product was introduced in the U.S. during the patent extension period from 2020 to 2027. However, due to BDSI and Endo entering into a termination agreement which terminated the BELBUCA license to Endo effective January 6, 2017, the deferred $20 million was recognized as revenue in January 2017.
(2)Net loss in 2018 includes the deemed dividend related to the beneficial conversion feature in Series B Preferred Stock of $12.5 million.
(3)Net loss in 2017 includes the bargain purchase gain of the BELBUCA acquisition from Endo totaling $27.3 million, recorded as income in January 2017.
(4)Total assets for the year ended December 31, 2021 includes the value of the BELBUCA license and distribution rights intangible asset, net, totaling $22.5 million, the value of the Symproic license and distribution rights intangible asset, net, totaling $23.9 million, and the value of ELYXYB product rights intangible asset, net, totaling $15.1 million.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Report. All amounts and percentages are approximate due to rounding. When we cross-reference to a “Note,” we are referring to our “Notes to Consolidated Financial Statements,” unless the context indicates otherwise. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those which are not within our control.
Our Strategy
Our growth strategy continues to evolve from our capable and successful commercial organization. We seek to further build a well-balanced, diversified, high-growth specialty pharmaceuticals company focused on delivering innovative therapies for patients living with serious and debilitating diseases. Through our industry-leading commercialization infrastructure, we continue to deliver strong growth of our existing portfolio and also possess the skills to launch new product initiatives. As part of our corporate growth strategy, we have licensed and acquired products and will pursue additional product opportunities in therapeutic areas that meet the needs of our patients. With focused attention on patient access and a structured business-development process for transformative acquisitions or licensing opportunities, we will fully leverage our experience and apply it toward developing new partnerships that enable us to commercialize novel products that can improve the lives of people suffering from challenging medical conditions.
We will continue to drive value from our product portfolio with a strong emphasis on BELBUCA growth, including further adoption in the large long-acting opioid market. The product uses our proprietary BEMA technology and maintains a unique delivery profile, strong payer access position and growing physician interest. Symproic continues to climb in both prescriptions and prescribers, proving to be a valuable complementary product for our called upon universe of BELBUCA targets. Our latest portfolio addition, ELYXYB, will furthermore benefit from our sales and marketing expertise and will provide a building foundation in the neurology specialty to fuel future growth opportunities for the business.
Recent Highlights
•On August 4, 2021, we announced that we entered into an agreement on August 3, 2021 with Dr. Reddy’s Laboratories Limited (which closed September 9, 2021) to acquire the U.S. and Canadian rights to ELYXYB, the only FDA-approved ready-to-use oral solution for the acute treatment of migraine, with or without aura, in adults.
•On October 21, 2021, we announced the appointment of John Golubieski as Chief Accounting Officer, effective October 25, 2021, and Chief Financial Officer, effective November 4, 2021. Mr. Golubieski brings to BDSI more than 30 years of financial and operational experience and will serve as a member of our company's executive leadership team.
•On December 20, 2021, we announced that the U.S. District Court of Delaware issued an opinion in favor of BDSI in our patent litigation against Alvogen Group, Inc. and its affiliates, who filed an Abbreviated New Drug Application (ANDA) for our BELBUCA product on May 23, 2018.
•On February 14, 2022, we announced that we entered into an agreement and plan of merger with Collegium Pharmaceutical, Inc., and Bristol Acquisition Company Inc., a Delaware corporation and wholly owned subsidiary of Collegium. Refer to Note 15 "Subsequent Events" of our consolidated financial statements for more information related to the merger.
•On February 24, 2022, we announced the U.S. commercial launch and availability of ELYXYB.
Critical Accounting Policies and Estimates
Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. We review all significant estimates affecting the consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates include: revenue recognition associated with sales allowances such as government program rebates, customer voucher redemptions, commercial contracts, rebates and chargebacks; sales returns reserves; sales bonuses; stock-based compensation; and deferred income taxes.
Impairment Testing
In accordance with Generally Accepted Accounting Principles, or GAAP, goodwill impairment testing is performed at the reporting unit level annually, or more frequently if indicated by events or conditions. We performed an evaluation and determined that there is only one reporting unit. In performing a goodwill impairment test, GAAP allows for either a qualitative or a quantitative assessment to be performed. If a qualitative evaluation determines that no impairment exists, then no further analysis is performed. If a qualitative evaluation is unable to determine whether impairment has occurred, a quantitative evaluation is performed. The quantitative impairment test first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value. If the carrying value exceeds the fair value, an impairment charge is recorded based on that difference. The determination of goodwill impairment is highly subjective. It considers many factors both internal and external and is subject to significant changes from period to period. No goodwill impairment charges have resulted from this analysis for 2021, 2020 or 2019.
An impairment of a long-lived asset other than goodwill is recognized under GAAP if the carrying value of the asset (or the group of assets of which it is a part) exceeds (i) the future estimated undiscounted cash flow from the use of the asset (or group of assets) and (ii) the fair value of the asset (or asset group). In making this impairment assessment, we predominately use an undiscounted cash flow model derived from internal forecasts. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures, and working capital requirements used in our cash flow models. If our management determines that the value of intangible assets have become impaired using this approach, we will record an accounting charge for the impairment. No impairment charges have been recorded for other amortizing intangibles in 2021, 2020 or 2019.
Inventory Valuation
We provide inventory write-downs determined primarily by the accumulated cost to manufacture our inventory, which is impacted by component costs and manufacturing yields. The write-down is measured as the difference between the cost of the inventory and net realizable value and charged to cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
We provide a reserve for excess and obsolete inventories identified by a lot-by-lot analysis of our finished goods inventory which considers the expiration dates and future demand forecasts. The write-down is measured as the difference between the cost of the inventory on-hand and the expected demand of the inventory. At the point of the loss recognition, a charge to cost of sales is recorded and a reserve is established for that inventory. The inventory reserve is relieved upon the future sale or disposal of that inventory.
Stock-Based Compensation and other Stock-Based Valuation Issues
We account for stock-based awards to employees and non-employees using fair value-based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Fair values of equity securities issued are determined by management based predominantly on the trading price of our common stock. The values of these awards are based upon their grant-date fair value. That cost is recognized over the period during which the employee is required to provide service in exchange for the award.
We use the Black-Scholes option pricing model to determine the fair value of stock option and warrant grants. Refer to Note 1, “Nature of business and summary of significant accounting policies” for more information related to assumptions in applying the Black-Scholes option pricing model.
Fair Value of Financial Instruments
We measure the fair value of instruments in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We consider the carrying amount of our cash and cash equivalents to approximate fair value due to short-term nature of this instrument.
Revenue Recognition
Revenue from Contracts with Customers
Under Accounting Standards Codification, or ASC, Topic 606, “Revenue from Contracts with Customers,” we are required to evaluate the impact of estimating variable consideration related to our product sales and licensing contracts. We use the expected value method to estimate the total revenue of the contract, constrained by the probability that there would not be a significant revenue reversal in a future period. We evaluate the expected value of revenue over the term of the contract and adjust revenue recognition as appropriate.
Refer to Note 1, “Nature of business and summary of significant accounting policies” for more information related to, (i) product sales, (ii) performance obligations, (iii) adjustments to product sales and (iv) gross to net accruals.
License and development agreements
We periodically enter into license and development agreements to develop and commercialize our products. The arrangements typically are multi-deliverable arrangements that are funded through upfront payments, milestone payments and other forms of payment. Depending on the nature of the contract these revenues are classified as research and development reimbursements or contract revenue.
Product Royalty Revenues
Product royalty revenue amounts are based on sales revenue of the PAINKYL product under the Company’s license agreement with TTY and the BREAKYL product under the Company’s license agreement with Mylan.
Cost of Sales
Cost of sales in 2021 includes direct costs attributable to the production of BELBUCA, Symproic, BREAKYL and PAINKYL. Cost of sales also includes royalty expenses owed to third parties. Cost of sales in 2020 and 2019 also included BUNAVAIL.
For BELBUCA, Symproic and formerly BUNAVAIL, cost of sales includes raw materials, production costs at our contract manufacturing sites, quality testing directly related to the product, lower of cost of market, and depreciation on equipment that we have purchased to produce BELBUCA, Symproic and BUNAVAIL. It also includes any batches not meeting specifications, raw material yield loss and reserves for excess and obsolete inventory. Cost of sales for BELBUCA, Symproic and BUNAVAIL are recognized when sold to the wholesaler from our distribution center. There were no deferred cost of sales for the years ended December 31, 2021 nor 2020. Yield losses and batches not meeting specifications are expensed as incurred. For the year ended December 31,2019, depreciation expense included accelerated depreciation for BUNAVAIL specific equipment due to the discontinuation of marketing BUNAVAIL in June 2020.
For BREAKYL and PAINKYL, we do not take ownership of the subject product as we do not have inventory. Accordingly, raw material product is transferred to Mylan, in the case of BREAKYL and TTY in the case of PAINKYL, immediately in accordance with the terms of our contractual arrangements with Mylan and TTY. LTS manufactures both products for us. Mylan’s and TTY’s royalty payments to us include an amount related to cost of sales. Ownership and title to the product, including insurance risk, belong to LTS through completion and inventory of the subject product, and then to Mylan and TTY upon shipment of such subject product. This is in accordance with our contracts with LTS and Mylan and TTY, which identify the subject product as FOB manufacturer.
Income taxes
Refer to Note 10, “Income taxes” for more information related to (i) the impact of the Tax Act to our Company, (ii) reconciliation of the Federal statutory income tax rate to the effective rate, (iii) the tax effects of temporary differences and net operating losses that give rise to significant components of deferred tax assets and liabilities and (iv) our federal and state net operating loss carry forward (“NOLs”).
Results of Operations
For the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Product Sales. We recognized $164.6 million and $154.6 million in product sales during the years ended 2021 and 2020, respectively, from our products BELBUCA, Symproic and minimally from BUNAVAIL in 2020. The increase in 2021 is principally due to growth of BELBUCA sales, offset by the discontinuation of BUNAVAIL in 2020.
Product Royalty Revenues. We recognized $2.1 million and $1.9 million in product royalty revenue during the years ended 2021 and 2020, respectively, which are composed of BREAKYL sales from Mylan and PAINKYL sales from TTY.
Cost of Sales. We incurred $23.4 million and $24.7 million in cost of sales during the years ended 2021 and 2020, respectively. Cost of sales includes product cost, royalties paid, and yield adjustments. The decrease in cost of sales in 2021 is driven by a credit received from our contract manufacturer in 2021 of $1.4 million.
Selling, General and Administrative Expenses. During the years ended 2021 and 2020, selling, general and administrative expenses totaled $106.2 million and $98.8 million, respectively. Selling, general and administrative costs include BELBUCA, and Symproic sales, marketing, commercial and amortization expenses. These costs also include legal expenses, professional fees, wages and stock-based compensation expense. The year over year increase in SG&A costs were driven primarily by increased sales and marketing efforts, higher legal expenditures, and the preparation of the ELYXYB launch, which occurred in Q1 2022.
Interest Expense, Net. During the year ended December 31, 2021, we had net interest expense of $7.5 million, consisting of $7.2 million of scheduled interest payments and $0.3 million of related amortization of discount and loan costs for the new debt arrangement. This has been partially offset by interest income of $0.04 million.
During the year ended December 31, 2020, we had net interest expense of $7.0 million, consisting of $7.0 million of scheduled interest payments and $0.3 million of related amortization of discount and loan costs for the new debt arrangement. This has been partially offset by interest income of $0.3 million.
Information pertaining to fiscal year 2019 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 on page 28 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on March 12, 2021.
Refer to Note 9, “Net sales by product” for more information related to (i) net product sales for BELBUCA, Symproic and BUNAVAIL, and (ii) the percentages related to each product.
Non-GAAP Financial Information:
We report our consolidated financial results in accordance with GAAP; however, we believe that earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other non-GAAP results should not be considered in isolation of or as an alternative for, earnings measures prepared in accordance with GAAP. Management uses these non-GAAP measures internally to measure the ongoing operating performance of our Company along with other metrics, and for planning and forecasting purposes. In addition, when evaluating non-GAAP results, we exclude certain items that are considered to be non-cash and if applicable, non-recurring, in nature.
EBITDA and Non-GAAP Income/(Loss):
We have presented EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe this financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of the expenses eliminated in calculating EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. Accordingly, we believe that EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.
EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income/(loss), which is the nearest GAAP equivalent. Some of these limitations are:
•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 EBITDA;
•EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and
•EBITDA excludes net interest, including both interest expense and interest income.
Non-GAAP net income/(loss) is an alternative view of our performance that we are providing because management believes this information enhances investors’ understanding of our results as it permits investors to better understand the ongoing operations of the business, the impact of any non-recurring one-time events, the cash results of the organization and is an additional measure used by management to assess performance.
Non-GAAP net income/(loss) is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of non-GAAP net income/(loss) rather than net income/(loss), which is the nearest GAAP equivalent. Some of these limitations are:
•Non-GAAP income/(loss) excludes certain one-time items because of the nature of the items and the impact that those have on the analysis of underlying business performance and trends. Specifically, in the presentation of non-GAAP income/(loss) for the year ended December 31, 2021, we have excluded the deferred tax benefit of $56.7 million, as it is non-recurring. Also, for the year ended December 31, 2019, we have excluded the financial impact of our debt refinancing which closed in May 2019, as it is non-recurring. This excluded item is a significant component in understanding and assessing ongoing financial performance. The one-time expenses related to the payoff of the CRG loan consisted of $5.2 million in unamortized deferred loan fees, $3.9 million in unamortized warrant discount costs and $2.8 million in loan prepayment fees and realized losses, for a cumulative total of $11.9 million in one-time costs. Also, we have excluded the non-recurring financial impact of the BUNAVAIL discontinuation, for a cumulative total of $0.3 million in 2020 and $3.8 million in 2019, and we have excluded the cash portion of the non-recurring financial impact of the CEO transition, for a cumulative total of $1.7 million in 2020;
•The expenses and other items that we exclude in our calculation of non-GAAP net income/(loss) may differ from the expenses and other items, if any, that other companies may exclude from non-GAAP net income/(loss) when they report their operating results since non-GAAP income/(loss) is not a measure determined in accordance with GAAP, and it has no standardized meaning prescribed by GAAP;
•We exclude stock-based compensation expense from non-GAAP net income/(loss) although (a) it has been, and will likely 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 likely be higher, which would affect our cash position;
•We exclude amortization of intangible assets from non-GAAP net income/(loss) due to the non-cash nature of this expense and although it has been and will continue to be for the foreseeable future a recurring expense for our business, these expenses do not affect our cash position; and
•Amortization of warrant discount costs associated with the CRG loan which was dissolved in May 2019 are excluded given these expenses did not affect our cash position;
Reconciliations of non-GAAP metrics to most directly comparable U.S. GAAP financial measures:
The following tables reconcile net income/(loss) earnings and computations (in thousands) under GAAP to a Non-GAAP basis.
Year Ended December 31,
Reconciliation of GAAP net income/(loss) to EBITDA (non-GAAP) 2021 2020 2019
GAAP net income/(loss) $ 84,860 $ 25,711 $ (15,305)
Add back:
Provision for income taxes (55,238) 252 5
Net interest expense 7,156 7,013 19,036
Depreciation and amortization 7,424 7,521 8,748
EBITDA $ 44,202 $ 40,497 $ 12,484
Reconciliation of GAAP net income/(loss) to Non-GAAP net income/(loss)
GAAP net income/(loss) 84,860 25,711 (15,305)
Non-GAAP adjustments:
Stock-based compensation expense 6,168 6,107 5,416
Amortization of intangible assets 7,284 6,982 6,981
Deferred tax benefit (56,527) - -
Amortization of warrant discount - - 448
Non-recurring financial impact of debt refinance - - 11,866
Non-recurring financial impact of BUNAVAIL discontinuation - 295 3,750
Non-recurring financial impact of CEO transition - 5,145 -
Non-GAAP net income/(loss) $ 41,785 $ 44,240 $ 13,156
Liquidity and Capital Resources
Since inception, we have financed our operations principally from the sale of equity securities, proceeds from borrowings, convertible notes, and notes payable, funded research arrangements, revenue generated as a result of our worldwide license and development agreements and the commercialization of our BELBUCA, Symproic and BUNAVAIL products. We intend to finance our commercialization and working capital needs from existing cash, earnings from the commercialization of BELBUCA and Symproic, royalty revenue, new sources of debt and equity financing, existing and new licensing and commercial partnership agreements and, potentially, through the exercise of outstanding common stock options and warrants to purchase common stock. We expect to incur additional costs in preparation for the commercialization of ELYXYB in Q1 2022.
At December 31, 2021, we had cash of approximately $114.3 million. We generated $41.0 million of cash in operations during the year ended December 31, 2021 and had stockholders’ equity of $187.8 million, versus stockholders’ equity of $108.2 million at December 31, 2020. We believe that we have sufficient current cash, along with expected proceeds from sales of BELBUCA and Symproic, to manage the business as currently planned.
Additional capital may be required to support the continued commercialization of our BELBUCA and Symproic products, our commercial launch of ELYXYB, or other products which may be acquired or licensed by us, and for general working capital requirements. Based on agreements with our partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product life cycle. Available resources may be consumed more rapidly than currently anticipated, potentially resulting in the need for additional funding.
Accordingly, it is possible that we may be required to raise additional capital, which may be available to us through a variety of sources, including:
•public equity markets;
•private equity financings;
•commercialization agreements and collaborative arrangements;
•grants and new license revenues;
•bank loans;
•equipment financing;
•public or private debt; and
•exercise of existing warrants and options.
Readers are cautioned that additional funding, capital or loans (including, without limitation, milestone or other payments from commercialization agreements) may be unavailable on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain technologies and drug formulations or potential markets, either of which could have a material adverse effect on us, our financial condition and our results of operations in 2022 and beyond. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in ownership dilution to existing stockholders.
Term Loan Agreement
Refer to Note 8, “Notes payable” for more information related to (i) the 2017 CRG Servicing, LLC ("CRG") term loan agreement and payoff (ii) the 2019 Biopharma Credit plc ("Pharmakon") loan agreement, and (iii) the future maturities of notes payable obligations.
Contractual Obligations and Commercial Commitments
Our non-cancellable contractual obligations as of December 31, 2021 are as follows (in thousands):
Payments Due by Period
Total Less than
1 year 1-3 years 3-5 years More than
5 years
Operating lease obligations $ 607 $ 381 $ 226 $ - $ -
Secured loan facility 60,000 4,615 43,077 12,308 -
Interest on secured loan facility 13,628 5,667 7,521 440 -
Minimum royalty expenses* 8,250 1,500 3,000 3,000 750
Total contractual cash obligations $ 82,485 $ 12,163 $ 53,824 $ 15,748 $ 750
* Minimum royalty expenses represent a contractual floor that we are obligated to pay CDC and NB Athyrium LLC regardless of actual sales. The minimum payment is $0.4 million per quarter or $1.5 million per year until patent expiry on July 23, 2027.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
Our cash includes all highly liquid investments with an original maturity of three months or less. Because of the short-term maturities of our cash, we do not believe that an increase in market rates would have a significant impact on the realized value of our investments. We maintain cash equivalent balances with financial institutions that management believes are of high credit quality. Our cash and cash equivalents accounts at times may exceed federally insured limits. We have not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk from cash and cash equivalents.
Foreign currency exchange risk
We currently have, and may in the future have increased, commercial, manufacturing and clinical agreements which are denominated in Euros or other foreign currencies. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar or Euro or other applicable currencies, or by weak economic conditions in Europe or elsewhere in the world. Such amounts are currently immaterial to our financial position or results of operations. We are not currently engaged in any foreign currency hedging activities.
Market Risk
We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. In connection with the recapitalization of our business, we have entered into a secured credit facility consisting of a term loan. Our term loan note bears interest which includes fluctuating interest rates based on LIBOR.
Additionally, LIBOR is to be phased out by June 23, 2023 and replaced. However, we will not be required to renegotiate our loan documents with our current lender.
Market indexed security risk
We have issued warrants to various holders underlying shares of our common stock. These warrant investments were measured at their fair value at date of issuance and recorded as warrant expense in the accompanying consolidated statement of operations. We use the Black-Scholes model for valuation of the warrants.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements and Notes thereto and the report of Ernst & Young, our independent registered public accounting firm (PCAOB ID: 42), are set forth on pages through of this Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Company 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 and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Report that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2021. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting at December 31, 2021.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The information required under this item is incorporated by reference to the information in our Proxy Statement for our 2022 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
The information called for by this Item is incorporated herein by reference to the Exhibit Index in this Form 10-K.
Number Description
3.1 Second Amended and Restated By-laws of the Company, adopted on November 17, 2017, filed with Form 8-K, dated November 17, 2017.
3.2 Certificates of Amendments, as amended, dated July 25, 2019, filed with 10-Q, dated August 8, 2019.
3.3 Form of certificate of Validation of the Company, filed with 8K, dated July 24, 2020.
3.4 Certificate of Amendment to the Certificate of Incorporation of the Company, as amended, filed with 8K, July 24, 2020.
3.5 Amendment No. 1 to Second Amended and Restated Bylaws of the Company., adopted February 13, 2022, filed with Form 8-K on February 14, 2022.
4.1 Description of the registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, filed with Form 10K, dated March 11, 2021.
10.1+ Sublicensing Consent, dated August 2, 2006, between Arius Two, Inc. and Arius Pharmaceuticals, Inc., filed with Form 8-K, dated August 9, 2006.
10.2+ Sublicensing Consent dated September 5, 2007, between Arius Pharmaceuticals, Inc. and Arius Two, Inc., filed with Form 8-K, dated September 10, 2007.
10.3+ License Agreement dated, September 5, 2007, by and between Arius Two, Inc., and Arius Pharmaceuticals, Inc., filed with Form 8-K, dated September 10, 2007.
10.4 Assignment of Patent and Trademarks, dated September 5, 2007, filed with Form 8-K, dated September 10, 2007.
10.5 Amendment Consent (EU), dated January 2, 2009, between Arius Pharmaceuticals, Inc. and Arius Two, Inc., filed with Form 8-K, January 6, 2009.
10.6 2011 Equity Incentive Plan, filed with PRE14A, dated June 1, 2011.
10.7 Amendment No. 1 to 2011 Equity Incentive Plan, filed with PRE14A, dated June 12, 2013.
10.8 Amendment No. 2 to 2011 Equity Incentive Plan, filed with PRE14A, dated June 10, 2014.
10.9 Amendment No. 3 to 2011 Equity Incentive Plan, filed with DEF14A, dated June 5, 2015.
10.10 Amendment No. 4 to 2011 Equity Incentive Plan, filed with DEF14A, dated November 1, 2017.
10.11 Form of Incentive Stock Option Agreement under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.12 Form of Nonqualified Stock Option Agreement for Company Employees under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.13 Form of Nonqualified Stock Option Agreement for Non-Employee Directors under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.14 Form of Restricted Stock Unit Award Agreement for Company Employees under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.15 Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.16 Form of Performance Restricted Stock Unit Award Agreement for Company Employees under the 2011 Equity Incentive Plan, filed with Form 10-Q, dated November 8, 2018.
10.17 Form of Director Indemnification Agreement, by and between the Company and each of the Directors of the Company, filed with Form 8-K, dated February 6, 2018.
10.18 Conditional Offer of Employment, dated July 20, 2018, between the Company and Thomas Smith, filed with Form 10-Q, dated November 8, 2018.
10.19+ Exclusive License Agreement dated, April 4, 2019, between the Company and Shionogi, Inc.,filed with Form 8-K, dated April 10, 2019.
10.20 Loan Agreement dated May 23, 2019 between the Company and Biopharma Credit PLC, filed with Form 10-Q, dated August 8, 2019.
10.21 2019 Stock Option and Incentive Plan, filed with DEF14A, dated June 17, 2019.
10.22 Form of Incentive Stock Option Agreement under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.23 Form of Nonqualified Stock Option Agreement for Company Employees under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.24 Form of Nonqualified Stock Option Agreement for Non-Employee Directors under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.25 Form of Restricted Stock Unit Award Agreement for Company Employees under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.26 Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.27 First Amendment to Offer Letter, dated October 21, 2020, between the Company and James Vollins, filed with Form 10K, dated March 11, 2021.
10.28 First Amendment to Offer Letter, dated November 3, 2020, between the Company and Terry Coelho, filed with Form 10K, dated March 11, 2021.
10.29 First Amendment to Promotion Letter, dated November 4, 2020, between the Company and Scott Plesha, filed with Form 10K, dated March 11, 2021.
10.30 Amended and Restated Employment Agreement, dated November 4, 2020, between the Company and Jeffrey Bailey, filed with Form 10K, dated March 11, 2021.
10.31+ Asset Purchase Agreement, dated August 3, 2021, by and between DRL and the Company, filed with Form 8-K dated August 4, 2021.
10.32 Employment Agreement, effective as of October 25, 2021, between the Company and John Golubieski, filed with Form 10Q dated November 3, 2021
10.33 Agreement and Plan of Merger, dated as of February 14, 2022, between the Company, Collegium Pharmaceutical, Inc., and Bristol Acquisition Company Inc., filed with Form 8-K dated February 14, 2022.
21.1* Subsidiaries of the Registrant
23.1* Consent of Ernst & Young
23.2* Consent of Cherry Bekaert LLP
31.1* Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1# Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2# Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.ins XBRL Instance Document
101.sch XBRL Taxonomy Extension Schema Document
101.cal XBRL Taxonomy Calculation Linkbase Document
101.def XBRL Taxonomy Definition Linkbase Document
101.lab XBRL Taxonomy Label Linkbase Document
101.pre XBRL Taxonomy Presentation Linkbase Document
_____________
* Filed herewith
+ Confidential treatment has been granted for certain portions of this exhibit pursuant to 17 C.F.R. Sections 200.8(b)(4) and 240.24b-2.
# A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.