EDGAR 10-K Filing

Company CIK: 1103021
Filing Year: 2021
Filename: 1103021_10-K_2021_0001103021-21-000029.json

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ITEM 1. BUSINESS
ITEM 1. Description of Business
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 strategy is evolving with the establishment of our commercial footprint. We seek to continue to build a well-balanced, diversified, high-growth specialty pharmaceutical company focused on delivering innovative therapies for individuals living with serious and debilitating chronic conditions. Through our industry-leading commercialization infrastructure, we are executing the commercialization of our existing products. As part of our corporate growth strategy, we have licensed, and will continue to explore opportunities to acquire or license, additional products that meet the needs of patients living with debilitating chronic conditions. As we gain access to these drugs and technologies, we will employ our commercialization experience to bring them to the marketplace. With a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities, we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions.
Our commercial strategy for BELBUCA is to further drive continued adoption in the large long-acting opioid (LAO) market based on its unique profile coupled with growing physician interest, policy tailwinds, and expanding payer access. We aim to leverage the specialized commercial infrastructure we established for BELBUCA as a vehicle to enable commercial growth in Symproic, which we view as a complementary asset.
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 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 2020, according to data from Symphony Health, the market for long-acting opioids in the U.S. totaled approximately $3 billion in annual sales with almost 12 million prescriptions dispensed. However, prescription volume of long-acting opioids declined more than 11% in 2020 compared to 2019 amidst continuing efforts to curb misuse, abuse and over use of opioids in order to address the current opioid 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 73% 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.
•For 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 2020, according to data from Symphony Health, the PAMORA market totaled $338 million in annual sales. There were over 577,000 PAMORA prescriptions dispensed, a decrease of 6% from 2019, driven by the decline in opioid prescribing.
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 fentanyl. The breakthrough cancer pain market has become increasingly crowded and more competitive in recent years.
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
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.
BUNAVAIL Treatment of opioid dependence Approval: U.S. in June 2014 Not currently marketed*
*We discontinued all marketing of BUNAVAIL in June 2020.
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 growing 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 January 2021, BELBUCA and Symproic are supported by a field force of approximately 118 sales representatives, 13 regional sales managers and two 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, we recently 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 increasing market access for BELBUCA. As of January 2021, BELBUCA had formulary coverage for more than 90% of commercial lives. Approval rates within the commercial channel in 2020 were approximately 90%. BELBUCA also continued to have favorable approval rates of approximately 90% in Medicare Part D plans for the year.
In 2020, BELBUCA continued to have strong coverage with over 100 million lives having preferred access and around 250 million lives having access to BELBUCA across all channels . BELBUCA total prescriptions in 2020, according to Symphony Health, totaled over 431,000, an increase of 30% over 2019. BELBUCA's share of total buprenorphine prescriptions (products for the treatment of chronic pain only) for 2020 totaled 44% compared to 38% for the prior year, exiting 2020 with a 46% share in December 2020. In addition to a steady increase in BELBUCA prescription volume through 2020, 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 2020, 47% of BELBUCA prescriptions were for doses of 450 mcg or greater, compared to 41% in 2019. Therefore, the weighted average price per prescription continued to increase in 2020.
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 2020, we also focused on increasing market access for Symproic. As of January 2021, Symproic had formulary coverage for over 90% of commercial lives. Approval rates within the commercial channel remained favorable throughout 2020 at about 85% and Medicare approval rates were above 70%.
In 2020, Symproic had approximately 100 million lives across the country with preferred access. Symproic total prescriptions in 2020, according to Symphony Health, totaled over 71,000, an increase of 12% over 2019. Symproic share of PAMORA prescriptions in 2020 totaled 12.4% versus 10.4% for the prior year, exiting 2020 with a 13.4% share in December.
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.
BUNAVAIL(buprenorphine and naloxone buccal film), CIII, for Opioid Dependence
In June 2014, BUNAVAIL was approved by the FDA for the maintenance treatment of opioid dependence as part of a complete treatment plan to include counseling and psychosocial support, and on November 3, 2014, we announced the availability of BUNAVAIL in the U.S. BUNAVAIL provides an alternative treatment utilizing the advanced BEMA drug delivery technology. BUNAVAIL provides the highest bioavailability of any buprenorphine-containing product for opioid dependence, allowing for effective treatment with half the dose compared to Suboxone film.
As noted above, in January 2017 with the reacquisition of BELBUCA, we transitioned our primary commercial emphasis from BUNAVAIL to BELBUCA; and with the licensing of Symproic in April 2019, our commercial efforts shifted to the continued growth of BELBUCA and Symproic. In March 2020, we announced that we the discontinuation of marketing for BUNAVAIL.
Additional Overview Information
From our inception through December 31, 2020, we have recorded accumulated losses totaling approximately $340.9 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 and Symproic;
•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 and Symproic 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 product through 2023.
•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 is 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. Our supply agreement with Shionogi runs until April 2021 and can be extended by written amendment up to two consecutive 6-month periods. 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.
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 our lead asset, BELBUCA. 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 and Symproic 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 and Symproic; and
•providing regulatory, pharmacovigilance (PV), and drug safety support for BELBUCA, Symproic, 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, 2020:
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 2021 and beyond. In addition, during the past year, we have completed and fully-analyzed a Phase 1 study which compared the effects of therapeutic doses of BELBUCA and oxycodone hydrochloride on respiratory drive in response to hypercapnia.
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 9, 2021, we have 176 full-time employees. Of which, 134 handle our outside sales and training, 7 are involved in our medical affairs, clinical development program and regulatory, 23 handle our administration, finance, legal, human resources, operations, quality and supply chain management, and 12 handle our marketing and market access. Advanced degrees and certifications of our staff include one M.D., three PharmDs, two CPAs, one chartered accountant, twenty MBAs, nine MSs, six MAs, three JDs, one MPA, one MEDU and three 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 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. In the fiscal year ended December 31, 2020, we recorded net income of $25.7 million. Our accumulated deficit at December 31, 2020 was approximately $340.9 million. As of December 31, 2020, we had working capital of approximately $129.4 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 or Symproic, sales of BELBUCA or Symproic 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 and Symproic. 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, and ONSOLIS, 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 and BUNAVAIL laminates and an additional two contract manufacturer to package the laminates into final product. We utilize only one contract manufacturer to create the Symproic tablets and only one contract manufacturer to package the tablets into final product. We have made significant progress during 2020 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 and Symproic, 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 and Symproic 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.
Our Series B Non-Voting Convertible Preferred Stock ranks senior to our common stock in the event of a bankruptcy, liquidation or winding up of our assets.
As of the date of this Report, we have 5,000 issued and 443 outstanding shares of Series B Non-Voting Convertible Preferred Stock, or “Series B”, which is convertible into 2,461,113 shares of our common stock. We issued the Series B in connection with our $50 million registered direct offering which closed on May 22, 2018. In the event of our bankruptcy, liquidation or winding up, our assets will be available to pay obligations on our Series B, in preference to the holders of our common stock. We also have 2,285,700 shares of preferred stock remaining as undesignated shares of preferred 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 9, 2021, there are 101,582,398 shares of common stock issued and 100,861,848 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.
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. 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.
Our corporate headquarters is located in Raleigh, North Carolina. We moved into our current headquarters in February 2015. The lease for this office, which commenced November 14, 2014 for 89 months, is approximately 12,000 square feet of space and has remaining base rent of $0.6 million payable through July 2022. Rent is payable in monthly installments and is subject to yearly price increases and increases for our share of common area maintenance costs. The landlord for this space is HRLP Raleigh, L.P. We believe this space is adequate as our principal executive office location.

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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 9, 2021, we had approximately 110 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, 2015 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, 2015:
12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
BioDelivery Sciences Int’l, Inc. $ 100.00 $ 36.53 $ 61.59 $ 77.24 $ 131.94 $ 87.68
Nasdaq Composite (U.S. Companies) 100.00 107.50 137.86 132.51 179.19 257.38
Nasdaq Global Select 100.00 107.59 138.18 133.10 180.49 258.17
Nasdaq Biotechnology 100.00 78.32 94.81 85.97 106.95 134.42
NYSE Pharmaceutical 100.00 88.94 100.65 105.05 120.72 127.34
Unregistered Sales of Equity Securities and Use of Proceeds
None
Issuer Purchases of Equity Securities
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 quarter ended December 31, 2020, a cumulative total of 47,503 shares, priced at $4.28 for a value of $0.2 million were repurchased and recorded as Treasury Stock in the 2020 consolidated balance sheet.

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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, 2020, 2019 and 2018 and the balance sheet data as of December 31, 2020 and 2019 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, 2017 and 2016 and the balance sheet data as of December 31, 2018, 2017 and 2016 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.
2020 2019 2018 2017 2016
Statements of Operations Data:
Total revenue (1) $ 156,471 $ 111,389 $ 55,640 $ 61,985 $ 15,546
Operating income (loss) 32,979 3,736 (23,648) (29,420) (63,935)
Net income (loss) (2) (3) 25,711 (15,305) (46,367) 5,285 (67,138)
Diluted net income (loss) per share 0.24 (0.18) (0.73) 0.09 (1.25)
Balance Sheet Data:
Cash, short-term and long-term investments $ 111,584 $ 63,888 $ 43,822 $ 21,195 $ 32,019
Total assets (4) 239,894 182,905 108,533 88,101 51,720
Long-term liabilities 78,665 59,148 57,252 53,075 50,097
Accumulated deficit (340,882) (366,593) (351,288) (305,056) (310,341)
Total stockholders’ equity (deficit) 108,234 69,764 29,742 8,877 (17,665)
Statements of Cash Flows Data:
Net cash flows from operating activities $ 24,981 $ 11,072 $ (24,113) $ (32,451) $ (53,982)
(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, 2020 includes the value of the BELBUCA license and distribution rights intangible asset, net, totaling $27.0 million and the value of the Symproic license and distribution rights intangible asset, net, totaling $26.4 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 strategy is evolving with the establishment of our commercial footprint. We seek to continue to build a well-balanced, diversified, high-growth specialty pharmaceutical company focused on delivering innovative therapies for individuals living with serious and debilitating chronic conditions. Through our industry-leading commercialization infrastructure, we are executing the commercialization of our existing products. As part of our corporate growth strategy, we have licensed, and will continue to explore opportunities to acquire or license, additional products that meet the needs of patients living with debilitating chronic conditions. As we gain access to these drugs and technologies, we will employ our commercialization experience to bring them to the marketplace. With a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities, we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions.
Our commercial strategy for BELBUCA is to further drive continued adoption in the large long-acting opioid market based on its unique profile coupled with growing physician interest, policy tailwinds, and expanding payer access. We aim to leverage the specialized commercial infrastructure we established for BELBUCA as a vehicle to enable commercial growth in Symproic, which we view as a complementary asset.
Recent Highlights
•On September 11, 2020, we announced the presentation of five scientific posters highlighting data regarding BELBUCA at the 14th Annual PAINWeek 2020 National Conference on Pain Management which took place virtually September 11-13, 2020.
•On November 4, 2020, we announced that our Board of Directors had appointed Jeff Bailey as permanent Chief Executive Officer, or CEO, effective November 4, 2020. Mr. Bailey had previously been appointed as interim CEO in May 2020 while continuing to serve on the Board of Directors.
•On November 4, 2020, we announced that our Board of Directors had authorized the repurchase of up to $25 million of our Company’s shares of common stock.
•In January 2021, we announced that we presented three scientific posters regarding BELBUCA at the 2021 North American Neuromodulation Society Meeting (NANS), which took place virtually.
•On February 11, 2021, we announced that we had promoted our Chief Financial Officer, Terry Coelho, to Executive Vice President and Chief Financial Officer.
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, sales allowances such as returns of product sold, government program rebates, customer coupon redemptions, wholesaler/pharmacy discounts, product service fees, rebates and chargebacks, sales bonuses, stock-based compensation, inventory, fixed assets,
determination of fair values of assets and liabilities relating to business combinations, 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 2020, 2019 or 2018.
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 2020, 2019 or 2018.
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
Effective January 1, 2018, we adopted Accounting Standards Codification, or ASC, Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective approach. We utilized a comprehensive approach to assess the impact of the guidance on our contract portfolio. We reviewed our current accounting policies and practices to identify potential differences resulting from the application of the new requirements to our revenue contracts, including evaluation of performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts. Under the new guidance, 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 will continue to 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 2020 includes direct costs attributable to the production of BELBUCA, Symproic, formerly BUNAVAIL, BREAKYL and PAINKYL. Cost of sales also includes royalty expenses owed to third parties.
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 and raw material yield loss. Cost of sales for BELBUCA, Symproic and BUNAVAIL are recognized when sold to the wholesaler from our distribution center. There was no deferred cost of sales for the years ended December 31, 2020 nor 2019. 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 from raw material 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, 2020 Compared to the Year Ended December 31, 2019
Product Sales. We recognized $154.6 million and $107.9 million in product sales during the years ended 2020 and 2019, respectively, from our products BELBUCA, Symproic and BUNAVAIL. The increase in 2020 is principally due to growth of BELBUCA sales and the full period impact of the Symproic acquisition.
Product Royalty Revenues. We recognized $1.9 million and $3.3 million in product royalty revenue during the years ended 2020 and 2019, respectively, which are composed of BREAKYL sales from Mylan and PAINKYL sales from TTY.
Contract Revenues. We recognized $0.2 million in contract revenue during the year ended 2019 related to milestone revenues associated with PAINKYL from TTY. There was no such contract revenue recognized during the same period in 2020.
Cost of Sales. We incurred $24.7 million and $21.6 million in cost of sales during the years ended 2020 and 2019, respectively. Cost of sales includes product cost, royalties paid, and yield adjustments. The increase in cost of sales in 2020 is driven by the overall increase in gross sales, as well as an increase in inventory obsolescence reserves for certain product
batches. Cost of sales in 2019 included a one time acceleration of depreciation expense for certain BUNAVAIL specific equipment.
Selling, General and Administrative Expenses. During the years ended 2020 and 2019, selling, general and administrative expenses totaled $98.8 million and $86.1 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 non-recurring costs associated with the CEO transition in the second quarter of 2020.
Interest Expense, Net. 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.
During the year ended December 31, 2019, we had net interest expense of $19.0 million, consisting of $11.9 million of one-time costs associated with the refinancing of our debt, $6.8 million of scheduled interest payments relating to both loans, $0.8 million of related amortization of discount and loan costs for both the old and new debt arrangements, and $0.4 million of warrant interest expense associated with the former CRG loan. 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.
During the year ended December 31, 2019, we also had interest income of $0.9 million.
Information pertaining to fiscal year 2018 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 on page 32 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, 2020.
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, 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) 2020 2019 2018
GAAP net income/(loss) $ 25,711 $ (15,305) $ (33,867)
Add back:
Provision for income taxes 252 5 14
Net interest expense 7,013 19,036 10,206
Depreciation and amortization 7,521 8,748 6,188
EBITDA $ 40,497 $ 12,484 $ (17,459)
Reconciliation of GAAP net income/(loss) to Non-GAAP net income/(loss)
GAAP net income/(loss) 25,711 (15,305) (33,867)
Non-GAAP adjustments:
Stock-based compensation expense 6,107 5,416 5,941
Amortization of intangible assets 6,982 6,981 5,157
Amortization of warrant discount - 448 1,076
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) $ 44,240 $ 13,156 $ (21,693)
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.
At December 31, 2020, we had cash of approximately $111.6 million. We generated $25.0 million of cash in operations during the year ended December 31, 2020 and had stockholders’ equity of $108.2 million, versus stockholders’ equity of $69.8 million at December 31, 2019. We believe that we have sufficient current cash, along with expected proceeds from sales, to manage the business as currently planned.
Additional capital may be required to support the continued commercialization of our BELBUCA and Symproic products, 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, while we don't anticipate that we will be required to raise additional capital in the near term, in the event funding is required, we believe it 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 2021 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, 2020 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 $ 589 $ 370 $ 219 $ - $ -
Secured loan facility 80,000 - 43,077 36,923 -
Interest on secured loan facility 23,107 7,706 12,290 3,111 -
Minimum royalty expenses* 9,750 1,500 3,000 3,000 2,250
Purchase obligations** 154 154 - - -
Total contractual cash obligations $ 113,600 $ 9,730 $ 58,586 $ 43,034 $ 2,250
* 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.
** Purchase obligations represent an agreement for the supply of active pharmaceutical ingredient for use in production.
Off Balance Sheet Arrangements
We are not a party to any off balance sheet arrangements.

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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 place our cash on deposit with financial institutions in the U.S. The Federal Deposit Insurance Corporation covers $0.25 million for substantially all depository accounts. As of December 31, 2020, we had approximately $111.6 million, which exceeded these insured limits.
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.
There is currently uncertainty around whether LIBOR will continue to exist after 2021. However, if LIBOR ceases to exist, 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, 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 Executive Vice President and 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 Executive Vice President 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 Executive Vice President, Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.
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 Executive Vice President 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, 2020 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, 2019. 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, 2020.

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

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Our directors and executive officers and their ages as of March 9, 2021 are as follows:
Name Age Position(s) Held
Peter S. Greenleaf 51 Chairman of the Board and Director
Jeffrey Bailey 58 Chief Executive Officer and Director
Scott M. Plesha 56 President and Chief Commercial Officer
Mary Theresa Coelho 59 Executive Vice President, Chief Financial Officer and Treasurer
Thomas B. Smith, M.D. 60 Chief Medical Officer
James Vollins 52 General Counsel, Chief Compliance Officer and Corporate Secretary
W. Mark Watson 70 Director
Todd C. Davis 60 Director
Kevin Kotler 49 Director
Mark A. Sirgo, Pharm. D. 67 Director
Vanila Singh, M.D., MAMC 50 Director
There are no family relationships between any of our directors or executive officers.
Peter S. Greenleaf, age 51, has been our Chairman of the Board and Director since May 2018. He has served as the Chief Executive Officer of Aurinia Pharmaceuticals, Inc., since April 2019. Previously, he served as the Chief Executive Officer of Cerecor, Inc., since March 2018 and as Chief Executive Officer of Sucampo Pharmaceuticals, Inc., from March 2014 to February 2018, when Sucampo was sold to Mallinckrodt PLC. Prior to that, Mr. Greenleaf served as Chief Executive Officer of Histogenics Corporation from June 2013 to March 2014, as President of MedImmune, Inc., and MedImmune Ventures from 2010 to June 2013, and Senior Vice President, Commercial Operations of MedImmune from 2006 to 2010. Mr. Greenleaf also held senior commercial roles at Centocor Biotech, Inc. (now Janssen Biotechnology, Johnson & Johnson), from 1998 to 2006, and at Boehringer Mannheim G.m.b.H. (now Roche Holdings) from 1996 to 1998. Mr. Greenleaf has been a member of the board of directors of Antares Pharma since December 2018. Mr. Greenleaf chairs the Maryland Venture Fund Authority and served as a member of the board of directors of the Biotechnology Industry Organization. He previously served on the boards of PhARMA, the Tech Council of Maryland and the University of Maryland Baltimore Foundation, Inc. Mr. Greenleaf earned an MBA degree from St. Joseph’s University and a BS degree from Western Connecticut State University.
Jeffrey Bailey, age 58, has been our Chief Executive Officer since November 2020, after serving as interim CEO from May to November 2020. Mr. Bailey joined the Board of Directors in March 2020. Mr. Bailey has an accomplished record in leading both public and private healthcare companies where he has leveraged his diverse leadership experiences in various functional areas including commercial, supply chain and business development, as well as in-licensing and transactions. His experiences include a 20+ year career at Johnson & Johnson/Janssen Pharmaceuticals as well as a tenure as Operating Unit President at Novartis Pharmaceuticals, Chief Commercial Officer at King Pharmaceuticals, Chief Operating Officer at Fougera Pharmaceuticals, and Chairman and CEO of Neurovance. Mr. Bailey also served as President and CEO of Lantheus Medical Imaging, Inc, taking the company public in 2015. Most recently, he was the CEO of IlluminOss Medical, Inc, which was acquired. Mr. Bailey has served as Chairman of Aileron Therapeutics since March 2018 and also serves as a board member for Tekla Capital Management. Mr. Bailey received a Bachelor of Science Degree from Rutgers University.
Scott M. Plesha, age 56, joined the company in August 2015 as our Senior Vice President, Sales, with more than 26 years of sales experience and over 18 years of sales management experience within the pharmaceutical and medical industries. Mr. Plesha assumed the additional responsibility of leading our Marketing department in December 2015. In January 2018, Mr. Plesha was appointed to the role of President of the Company. Mr. Plesha leads our Specialty Sales Force, Marketing, and Training departments. Prior to joining the company, Mr. Plesha was Senior Vice President, GI Sales Force & Training at Salix Pharmaceuticals, where since 2002 he led Salix’s top rated gastrointestinal (GI) sales forces, the sales training department as well as many other sales operations functions. During Mr. Plesha’s tenure at Salix he was responsible for launching or growing product sales as well as optimizing and expanding the sales force to accommodate the multiple companies and products that Salix acquired. Prior to joining Salix, Mr. Plesha was a Regional Sales Manager for the O’Classen Dermatologics division of Watson Pharmaceuticals, Inc. Mr. Plesha began his pharmaceutical sales career with Solvay Pharmaceuticals where he was a field as well institutional sales representative. Mr. Plesha received a Bachelor of Arts in Pre-Medical Studies from DePauw University.
Terry Coelho, age 59, has been our Executive Vice President, Chief Financial Officer and Treasurer since January 2021 and has more than 30 years of financial and operational experience. Ms. Coelho previously served as Chief Financial Officer
and Treasurer since January 2019. Ms. Coelho’s extensive experience includes serving in diverse leadership capacities across various industries for both private and public global companies. Prior to joining the company, Ms. Coelho served as Chief Financial Officer and Treasurer at Balchem Corporation from October 2017 to October 2018. From September 2017 to October 2017, she served as Chief Operating Officer for Diversey, Inc., a multi-billion dollar global private equity carve-out from Sealed Air Corporation and held senior finance positions at Diversey Care from October 2014 through August 2017, including as Chief Financial Officer for Diversey Care. Ms. Coelho has also served in senior finance leadership roles at Novartis from 2007 to 2014. She spent the previous twenty years at Mars, Incorporated where she held roles of increasing responsibility and encompassing leadership across all areas of finance and general management. Ms. Coelho earned an MBA in Finance from IBMEC in Brazil and a Bachelor of Arts degree in both Economics and International Relations, summa cum laude, from The American University School of International Service.
Thomas B. Smith, M.D., age 60, has been our Chief Medical Officer since July 2018 and brings nearly thirty years of medical experience and expertise in the field of pain management. His extensive and wide-ranging roles include having served as Chief Medical Officer at various leading pain companies, head of medical affairs at top tier pharma and CRO companies, as well as running his own private practice. Dr. Smith served as Chief Medical Officer at Charleston Labs, Inc., from January 2017 to July 2018 and from October 2014 to January 2017, he served as the Chief Medical Officer of Ameritox, Ltd. Dr. Smith previously served as Chief Medical Officer for Mallinckrodt Pharmaceuticals from 2012 to 2014 and held clinical leadership roles at Abbott Laboratories, Teva Pharmaceuticals, Kendle International, Akros Pharma and Genzyme during 2001 to 2014. Dr. Smith earned a Doctor of Medicine degree from the Indiana University School of Medicine and a Bachelor of Science degree from Purdue University. He is a member of several medical societies and organizations including the American Medical Association and the American Academy of Family Physicians. Dr. Smith is a highly published scientific author and has delivered more than 150 presentations in his field of expertise.
James Vollins, age 52, has been our General Counsel, Chief Compliance Officer and Corporate Secretary, and member of the Executive Leadership Team since November 2018. Mr. Vollins has twenty-five years of legal experience with over ten years of in-house experience in the pharmaceutical industry, which includes work on several major strategic transactions and a successful initial public offering. From 2014 to 2018, Mr. Vollins was General Counsel, Chief Compliance Officer and Corporate Secretary for Bio Products Laboratory Limited, a UK based manufacturer of plasma-derived therapies, where he helped lead the transformation of the business from a government owned not-for-profit to a high-performing commercial enterprise that successfully launched three new drugs in the U.S., expanded its sales force, and achieved significant revenue growth. Mr. Vollins has also worked for other industry-leading pharmaceutical companies, including Grifols Inc., Talecris Biotherapeutics, Inc. and Pfizer Inc. Mr. Vollins received a Juris Doctor from Case Western Reserve University School of Law and a Bachelor of Arts from Wesleyan University.
W. Mark Watson, CPA, age 70, joined our Board of Directors as an independent member in December 2017 and is Chairman of the Audit Committee. Mr. Watson is a Certified Public Accountant with over 40 years of experience in public accounting and auditing, having spent his entire career from January 1973 to June 2013 at Deloitte Touche Tohmatsu, the multinational professional services network, and its predecessor, most recently as Central Florida Marketplace Leader. Among other industries, he has a particular expertise in the health and life sciences sector. He has served as lead audit partner and advisory partner on the accounts of many public companies ranging from middle market firms to Fortune 500 enterprises. Mr. Watson is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants. Mr. Watson is a member of the Board of Directors of Sykes Enterprises, Inc., and is Chairman of the Audit Committee. He is also Chairman of the Board of Directors and Chairman of the Audit Committee of Inhibitor Therapeutics, Inc. He received his undergraduate degree in Accounting from Marquette University.
Todd C. Davis, age 60, has served as a member of our Board of Directors since May 2018. Mr. Davis is the Founder and Managing Partner of RoyaltyRx Capital, a special opportunities investment firm. He is also Chairman and CEO of Benuvia Holdings, a pharmaceutical holding company. From 2006 until 2018, Mr. Davis was a Founder & Managing Partner of Cowen/HealthCare Royalty Partners, a global healthcare investment firm. He has almost 30 years of experience in both operations and investing in the biopharmaceutical and life science industries. Mr. Davis has been involved in over $3 billion in healthcare financings, including growth equity, public equity turnarounds, structured debt, and royalty acquisitions. He has also led, structured, and closed more than 40 additional intellectual property licenses, as well as hybrid royalty-debt deals. Previously, Mr. Davis was a partner at Paul Capital Partners, where he co-managed that firm's royalty investments as a member of the Royalty Management Committee. He also served as a partner responsible for biopharmaceutical growth equity investments at Apax Partners. Mr. Davis began his business career in sales at Abbott Laboratories, where he held several commercial positions of increasing responsibility. He subsequently held general management, business development, and licensing positions at Elan Pharmaceuticals. Mr. Davis is a Navy veteran who holds a BS from the U.S. Naval Academy and an MBA from Harvard University. He currently serves on the boards of Palvella Therapeutics Inc., Vaxart, Inc., and Ligand Pharmaceuticals.
Kevin Kotler, age 49, has served as a member of our Board of Directors since May 2018. Mr. Kotler has over 27 years of experience as an investor and analyst following the healthcare industry. He is the Founder and Portfolio Manager of Broadfin
Capital, LLC, a healthcare focused investment fund which launched in 2005. Broadfin utilized passive and activist investment strategies in public and private medical technology, biotechnology and pharmaceutical companies. He formerly served on the boards of Avadel Pharmaceuticals plc, Novelion Therapeutics, Inc. and Memorial Sloan-Kettering Cancer Center Technology Development Fund. He is cofounder of Hamptons United a charity started as a result of the coronavirus pandemic to help support local charities. Kevin graduated from the Wharton School at the University of Pennsylvania in 1993 with a Bachelor of Science degree in Economics.
Mark A. Sirgo, Pharm.D., age 67, served as a member of our Board of Directors since August 2005. He has served as Chief Executive Officer of ArunA Bio an R&D company focused in using neural exosomes to treat neurodegenerative diseases since January 2019. Formerly, he served as our President since January 2005 and Chief Executive Officer since August 2005 until his retirement in January 2018. He joined our company in August 2004 as Senior Vice President of Commercialization and Corporate Development upon our acquisition of Arius Pharmaceuticals, of which he was a co-founder and Chief Executive Officer. He has also served as our Executive Vice President, Corporate and Commercial Development and our Chief Operating Officer. Dr. Sirgo has over 35 years of experience in the pharmaceutical industry, which includes clinical drug development, marketing, sales, and business development, and executive management positions. Prior to Arius Pharmaceuticals, from 2003 to 2004, he spent 16 years in a variety of positions of increasing responsibility in both clinical development and marketing at Glaxo, Glaxo Wellcome, and GlaxoSmithKline, including Vice President of International OTC Development and Vice President of New Product Marketing. From 1996 to 1999, Dr. Sirgo was Senior Vice President of Global Sales and Marketing at Pharmaceutical Product Development, Inc. (PPD). Dr. Sirgo served on the Board of Directors of Salix Pharmaceuticals, Inc., from 2008 until its sale in 2015. Dr. Sirgo has been a Director at Biomerica, Inc. (Nasdaq:BMRA), a diagnostics and therapeutic company, since July 2016 and as Chairman of the Board of 9 Meters Pharma (Nasdaq:NMTR) since April 2020. Dr. Sirgo received his BS in Pharmacy from The Ohio State University and his Doctorate from Philadelphia College of Pharmacy and Science
Vanila M. Singh, M.D., MAMC, age 50, joined our Board of Directors as an independent director in November 2019. Dr. Singh is currently a Clinical Associate Professor of Anesthesiology, Pain and Peri-operative Medicine at Stanford University School of Medicine and is a teaching mentor at Walter Reed National Military Medical Center. Dr. Singh is the immediate past Chief Medical Officer of the United States Department of Health and Human Services (HHS) and served as Chairperson of the Inter-Agency Pain Management Best Practices Task Force, chartered by Congress and involving multiple federal health agencies, professional medical organizations, and patient advocacy groups to guide the medical community and key stakeholders in optimal patient care in a growing and complex national health matter. Dr. Singh, board-certified in both anesthesiology and pain medicine, specializes in treating patients with complex chronic pain issues. She graduated from the University of California at Berkeley with a B.S. in both molecular and cell biology and economics. She received her M.D. from the George Washington University School of Medicine & Health Sciences. Dr. Singh completed her internal medicine internship at Yale University School of Medicine and her anesthesiology residency and pain medicine fellowship at Weill-Cornell New York Presbyterian Hospital, which included training at Memorial Sloan Kettering and the Hospital for Special Surgery.
Key Employees
Below are the biographies of certain key non-executive officer employees of our company:
Joseph Lockhart was promoted to Senior Vice President of Operations for our company in January 2018 after having served as our Vice President of Manufacturing and Supply Chain since joining the company in November 2015. Drawing upon over 30 years of experience in the pharmaceutical industry with specific focus in the areas of manufacturing, supply chain, product development, CMC (Chemistry, Manufacturing, and Controls) and quality, Mr. Lockhart now provides senior-level management to our company’s overall Operations, including Clinical, Quality, Regulatory, and Manufacturing/Supply Chain. Prior to joining our company, Mr. Lockhart served as Vice President, Pharmaceutical Development and Manufacturing at Salix Pharmaceuticals, where since 2001 he established the Pharmaceutical Development and Manufacturing team and contributed to multiple NDA submissions, as well as multiple product acquisitions and launches. During Mr. Lockhart’s tenure at Salix he held positions of increasing responsibility and was responsible for managing Manufacturing, Technical Operations, Formulation Development, and Clinical Trial Material Operations. From 1986 thru 2001 Mr. Lockhart served in various pharmaceutical CMC-related roles and responsibilities at both the Manager and the Director levels of management. Mr. Lockhart received a Master of Business Administration degree from the University of North Carolina at Charlotte as well as a Bachelor of Arts degree in Chemistry from the University of North Carolina at Chapel Hill.
Kevin Ostrander joined our company in January 2020 as Senior Vice President, Business Development. Drawing on nearly 30 years of pharmaceutical industry experience in the areas of business development, licensing, regulatory affairs, marketing, project management and formulation/process development, Kevin leads our business development function with experience in closing more than 75 transactions across brand, generic and OTC markets. Prior to joining our company, Mr. Ostrander served in the role of Vice President of Business Development for Glenmark Pharmaceuticals Inc. USA, whereby he
developed several strategic product partnerships for the US generics division, as well as, having closed multiple transactions in the branded prescription area to expand the company’s US presence. Before joining Glenmark, Mr. Ostrander held positions of increasing responsibility with Sandoz Inc. (Division of Novartis), Mylan Specialty, Watson Pharmaceuticals, Cardinal Health, Elan Drug Delivery and Nycomed. Mr. Ostrander has been involved in the issuance of several US patents for his previous contributions in research and development. Mr. Ostrander received a Master of Business Administration degree in International Business from St. Joseph’s University in Philadelphia, Pennsylvania, a Master of Science degree in Pharmaceutical Regulatory Affairs and Quality Assurance from Temple University School of Pharmacy, Philadelphia, Pennsylvania and a Bachelor of Science degree in Biology from the State University of New York at Albany.
Director Independence
We believe that Peter S. Greenleaf, W. Mark Watson, Todd C. Davis, Kevin Kotler and Dr. Vanila Singh qualify as independent directors for NASDAQ Stock Market purposes. This means that our board of directors is composed of a majority of independent directors as required by NASDAQ Stock Market rules.
Meetings of the Board of Directors and Stockholders
Our board of directors met in person and telephonically seven times during 2020 and also acted by unanimous written consent. All members of our board of directors were present for at least 86% of the board of directors’ meetings held. It is our policy that all directors must attend all stockholder meetings, barring extenuating circumstances. All directors were present at the 2020 Annual Meeting of Stockholders.
Board Committees
Our board of directors has established three standing committees: Audit, Compensation, and Nominating and Corporate Governance. All standing committees operate under a charter that has been approved by the board. Our board of directors has also, from time to time, appointed non-standing committees to assist the board in its duties to our company. The charters for each of our board committees are available at https://ir.bdsi.com/corporate-governance-compliance.
Audit Committee
Our board of directors has an Audit Committee, composed of W. Mark Watson, Peter S. Greenleaf and Todd C. Davis, all of whom are independent directors as defined in accordance with section 3(a)(58)(A) of the Exchange Act and the rules of NASDAQ. Mr. Watson serves as chairman of the committee. The board of directors has determined that Mr. Watson is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee met seven times during 2020. All members of the Audit Committee were present for at least 86% of the Audit Committee meetings held during such director’s tenure in 2020 as a member of the Audit Committee.
Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits and reviews of financial statements. For this purpose, the Audit Committee has a charter (which is reviewed annually). As summarized below, the Audit Committee:
•evaluates the independence and performance of, and assesses the qualifications of, our independent registered public accounting firm and engages such independent registered public accounting firm;
•approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services and approves in advance any non-audit services and fees therefor to be provided by the independent registered public accounting firm;
•monitors the independence of the independent registered public accounting firm and the rotation of partners of the independent registered public accounting firm on our engagement team as required by law;
•reviews the financial statements to be included in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and the independent registered public accounting firm the results of the annual audit and reviews of our quarterly financial statements;
•oversees all aspects of our systems of internal accounting and financial reporting control; and
•provides oversight in connection with legal, ethical and risk management compliance programs established by management and the board, including compliance with requirements of Sarbanes-Oxley and makes recommendations to the board of directors regarding corporate governance issues and policy decisions.
Nominating and Corporate Governance Committee
Our board of directors has a Nominating and Corporate Governance Committee composed of Kevin Kotler, W. Mark Watson and Todd C. Davis. Kevin Kotler serves as the chairman of the committee. The Nominating and Corporate Governance Committee is charged with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the board of directors for consideration. The Nominating and Corporate Governance Committee met four times in 2020 and has a charter which is reviewed annually. All members of the Nominating and Corporate Governance Committee are independent directors as defined by the rules of the NASDAQ Stock Market. The Nominating and Corporate Governance Committee will consider director nominees recommended by security holders. To recommend a nominee please write to the Nominating and Corporate Governance Committee c/o James Vollins, BioDelivery Sciences International, Inc, 4131 ParkLake Avenue. Suite #225, Raleigh, NC 27612. The Nominating and Corporate Governance Committee has established nomination criteria by which board candidates are to be evaluated. The Nominating and Corporate Governance Committee will assess all director nominees using the same criteria. During 2020, we did not pay any fees to any third parties to assist in the identification of nominees.
The Nominating and Corporate Governance Committee has adopted a set of criteria by which it will seek to evaluate candidates to serve on our board of directors. The evaluation methodology includes a scored system based on criteria including items such as experience in the biotechnology sector, experience with public companies, executive managerial experience, operations and commercial experience, fundraising experience and contacts in the investment banking industry, personal and skill set compatibility with current board members, industry reputation, knowledge of our company generally, independence and ethnic and gender diversity. While diversity is considered as a board qualification criteria, it would not be weighted any more or less in an evaluation process than any other criteria. The established criteria do not distinguish board candidates based on whether the candidate is recommended by a stockholder of our company.
Compensation Committee
Our board of directors also has a Compensation Committee, which reviews or recommends the compensation arrangements for our management and employees and also assists the board of directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter (which is reviewed annually) and is composed of four members: Todd C. Davis, Peter S. Greenleaf, Kevin Kotler and Dr. Vanila Singh. Todd C. Davis serves as chairman of this committee. The Compensation Committee met six times during 2020.
The Compensation Committee has the authority to directly engage, at our expense, any compensation consultants or other advisers as it deems necessary to carry out its responsibilities in determining the amount and form of employee, executive and director compensation. In 2020, the Compensation Committee engaged Willis Towers Watson ("WTW") to obtain market data against which it has measured the competitiveness of our compensation programs. In determining the amount and form of employee, executive and director compensation, the Compensation Committee has reviewed and discussed historical salary information as well as salaries for similar positions at comparable companies. We paid consultant fees to WTW of $0.1 million in 2020.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own, in fiscal year 2020, all Forms 3, 4 and 5 were timely filed with the SEC by such reporting person, with the exception of Dr. Vanila Singh, who filed a Form 4, which was due November 25, 2020 on November 27, 2020, and Todd Davis, who filed a form 5, which was due on February 15, 2019, on February 16, 2021.
Code of Ethics
We have adopted a code of ethics that applies to all employees, as well as each member of our board. Our code of ethics is posted on our website, and we intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of ethics by posting such information on our website, www.bdsi.com. A copy of our code of ethics is also available in print, without charge, upon written request to 4131 ParkLake Avenue, Suite #225, Raleigh, NC 27612. Attn: James Vollins.
Involvement in Certain Legal Proceedings
None.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The following table sets forth all compensation paid to our named executive officers at the end of the fiscal years ended December 31, 2020, 2019 and 2018. Individuals we refer to as our “named executive officers” include our Chief Executive Officer, our former Chief Executive Officer, our Executive Vice President and Chief Financial Officer, and our most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2020.
Summary Compensation Table
Name and principal
position Year Salary
($) Bonus
($) Stock
Awards
($)(15) Option
Awards
($)(15) Non-Equity Incentive Plan Compensation
($)(7) All Other
Compensation
($) Total
($)
Jeffrey Bailey, Chief Executive Officer and Director (1)
2020 383,497 (2) 200,000 (3) 993,208 (4) 2,360,041 (5) - 16,464 (6) 3,953,210
Terry Coelho, Executive Vice President, Chief Financial officer and Treasurer 2020 396,512 - 168,752 428,155 207,508 (7) 53,155 (8) 1,254,082
2019 362,022 - 235,400 282,768 190,575 34,198 1,104,963
Scott M. Plesha, President and Chief Commercial Officer
2020 390,313 - 180,002 456,699 186,193 (7) 52,956 (9) 1,266,163
2019 375,669 - 184,800 703,150 205,200 35,040 1,503,859
2018 371,080 - 332,813 - 180,675 34,423 918,991
Thomas Smith, M.D., Chief Medical Officer
2020 371,823 - 125,000 317,151 158,046 (7) 40,195 (10) 1,012,215
2019 352,564 - 106,260 373,100 156,200 25,326 1,013,450
2018 139,327 25,000 (3) - 165,944 50,094 3,441 383,806
James Vollins, General Counsel, Chief Compliance Officer and Corporate Secretary
2020 336,953 - 137,498 348,869 194,906 (7) 54,817 (11) 1,073,043
2019 310,714 - 53,130 186,550 148,800 29,563 728,757
2018 41,731 35,000 (3) - 210,269 - 351 287,351
Herm Cukier, former Chief Executive Officer and Director (12) 2020 228,302 - 500,002 4,755,611 (13) - 1,627,558 (14) 7,111,473
2019 582,496 - 433,125 1,549,800 355,135 16,966 2,937,522
2018 359,539 50,000 (3) 526,000 1,288,000 231,050 14,459 2,469,048
____________
(1)Mr. Bailey was hired as interim CEO in May 2020 and then as permanent CEO in November 2020.
(2)Includes $7,788 in compensation paid in 2020 while serving on the Board of Directors.
(3)The bonus represents paid sign-on amounts.
(4)Includes $139,753 in incremental expense associated with the acceleration of RSU vesting upon acceptance of role as permanent CEO in November 2020.
(5)Includes $175,247 in incremental expense associated with the acceleration of option vesting upon acceptance of role as permanent CEO in November 2020.
(6)Includes: $1,863 of health insurance premiums paid, $351 telephone reimbursement and 401(k) matching of $14,250 paid in 2020.
(7)The amounts reported in this column represent bonuses paid with respect to performance for the applicable year.
(8)Includes: $21,270 of health insurance premiums paid, $2,280 telephone reimbursement, 401(k) matching of $14,250 and $15,156 of vacation paid in 2020.
(9)Includes: $21,269 of health insurance premiums paid, $2,280 telephone reimbursement, 401(k) matching of $14,250 and $15,356 vacation paid in 2020.
(10)Includes: $9,192 of health insurance premiums paid, $2,280 telephone reimbursement, 401(k) matching of $14,250 and $14,473 vacation paid in 2020.
(11)Includes: $23,864 of health insurance premiums paid, $2,280 telephone reimbursement, 401(k) matching of $14,250 and $14,423 vacation paid in 2020.
(12)Mr. Cukier served as CEO until May 2020.
(13)Includes $3,487,000 in incremental expense associated with the acceleration of option vesting upon termination.
(14)Includes $1,556,139 severance paid, $45,914 vacation paid, $10,375 of health insurance premiums paid. $877 telephone reimbursement and 401(k) matching of $14,250 paid in 2020.
(15)The reported amounts represent the aggregate grant date fair value of the awards computed in accordance with Financial Accounting Standards Board Account Standards Codification Topic 718, Stock Compensation, as modified or supplemented, or FASB ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in Note 11 to our Consolidated Financial Statements for the year ended December 31, 2020 included in our Annual Report.
Grants of Plan-Based Awards in 2020
Name Grant
Date (1) Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards Estimated Future Payouts
Under Equity Incentive Plan
Awards All Other
Stock Awards:
Number of
Shares of
Stocks or
Units
(#) All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) Exercise
or Base
Price of
Option
Awards
($/Sh) Closing
stock
price on
Award
date
($/Sh)(2) Grant
Date Fair
Value of
Stock and
Option
Awards
($)
Target
($) (16) Target
(#)
Jeff Bailey 3/9/2020 (3) 96,000 $ 5.18 $ 4.19 $ 195,840
5/11/2020 (4) 160,000 $ 4.23 $ 4.75 $ 296,000
7/30/2020 (5) 66,805 $ 4.36 $ 4.17 $ 138,954
11/4/2020 (6) 840,000 $ 3.60 $ 3.46 $ 1,554,000
3/9/2020 (7) 16,000 $ 71,360
5/11/2020 (8) 40,000 $ 203,200
7/30/2020 (9) 11,134 $ 46,095
11/4/2020 (10) 160,000 $ 532,800
11/4/2020 (11) 40,000 160,000 $ 315,000
Terry Coelho 1/29/2020 (12) 148,665 $ 6.17 $ 5.50 $ 428,155
1/29/2020 (13) 30,571 $ 168,752
179,660
Scott Plesha 1/29/2020 (12) 158,576 $ 6.17 $ 5.50 $ 456,699
1/29/2020 (13) 32,609 $ 180,002
177,327
Thomas Smith, M.D. 1/29/2020 (12) 110,122 $ 6.17 $ 5.50 $ 317,151
1/29/2020 (13) 22,645 $ 125,000
150,520
James Vollins 1/29/2020 (12) 121,135 $ 6.17 $ 5.50 $ 348,869
1/29/2020 (13) 24,909 $ 137,498
168,750
Herm Cukier 1/29/2020 (14) 440,490 $ 6.17 $ 5.50 $ 1,268,611
1/29/2020 (13) 90,580 $ 500,002
5/9/2020 (15) 1,333,824 $ 3,487,000
___________
(1)The “Grant Date” represents the date on which the Compensation Committee of the Board took action to grant the applicable award.
(2)Stock options were historically granted with an exercise price based upon the 30-day weighted average price ending on the date proceeding the grant.
(3)The equity awards disclosed in this item consist of options, as issued under our 2019 Stock Option Incentive Plan (2019 Plan), which vest ratably in thirds beginning March 2021.
(4)The equity awards disclosed in this item consist of performance options, as issued under our 2019 Plan, which fully vested in November 2020 when Mr. Bailey accepted the permanent role of CEO.
(5)The equity awards disclosed in this item consist of time-based options, as issued under our 2019 Plan, which half vested in the first open window following the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and the remaining half vest in the first open window following the Company's 2021 Annual Meeting of Stockholders.
(6)The equity awards disclosed in this item consist of options, as issued under our 2019 Plan, which vest ratably in thirds beginning November 2021.
(7)The equity awards disclosed in this item consist of time-based RSUs, as issued under our 2019 Plan, which vest ratably in thirds beginning March 2021.
(8)The equity awards disclosed in this item consist of performance-based RSUs, as issued under our 2019 Plan, which fully vested in November 2020 when Mr. Bailey accepted the permanent role of CEO.
(9)The equity awards disclosed in this item consist of time-based RSUs, as issued under our 2019 Plan, which half vested in the first open window following the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and the remaining half vest in the first open window following the Company's 2021 Annual Meeting of Stockholders.
(10)The equity awards disclosed in this item consist of time-based RSUs, as issued under our 2019 Plan, which vest ratably in thirds beginning November 2021.
(11)The equity awards disclosed in this item consist of the 160,000 options and 40,000 RSUs that were granted on May 11, 2020 and which vested immediately upon Mr. Bailey's acceptance of the permanent role of CEO, and includes $315,000 in incremental expense associated with the accelerated vesting of these options and RSUs.
(12)The equity awards disclosed in this item consist of options, as issued under our 2019 Plan, which vest ratably in thirds beginning January 2021.
(13)The equity awards disclosed in this item consist of time-based RSUs, as issued under our 2019 Plan, which vest ratably in thirds beginning January 2021.
(14)The equity awards disclosed in this item consist of options, as issued under our 2019 Plan, which immediately vested upon Mr. Cukier's termination May 2020.
(15)The equity awards disclosed in this item consist of 1,333,824 options from prior grants which vested immediately upon Mr. Cukier's termination in May 2020 and includes $3,487,000 in incremental expense associated with the acceleration of option vesting.
(16)This column sets forth the target bonus amount for each NEO for the year ended December 31, 2020 under the performance bonus plan. There are no thresholds or maximum bonus amounts for each individual officer established under the performance bonus plan. Target bonuses were set as a percentage of each NEO’s base salary earned for the fiscal year ended December 31, 2020. The dollar value of the actual bonus award earned for the year ended December 31, 2020 for each NEO is set forth in the Summary Compensation Table above. As such, the amounts set forth in this column do not represent either additional or actual compensation earned by the NEOs for the year ended December 31, 2020.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements
Below is a description of our current executive employment agreements with our named executive officers. All directors and officers have executed confidentiality and noncompetition agreements with us.
Jeffrey Bailey, Chief Executive Officer - Mr. Bailey assumed the role of Chief Executive Officer in November 2020, after serving as interim CEO from May-November 2020. He joined the Board of Directors in March 2020.
Pursuant to the Bailey Agreement, Mr. Bailey will serve as Chief Executive Officer of the Company, effective as of November 4, 2020 (the “Effective Date”). As Chief Executive Officer, Mr. Bailey will be paid an annual base salary of $650,000, will be eligible to receive a target annual incentive bonus equal to 70% of his base salary, commencing in 2021. For recognition of Mr. Bailey’s service as interim Chief Executive Officer, Mr. Bailey will be paid a one-time bonus of $200,000 to be paid by December 31, 2020, subject to his continued employment (the “Interim CEO Bonus”). The Interim CEO Bonus will be paid in lieu of a similar one-time bonus from his prior offer letter. In connection with the execution of the Bailey Agreement, the Company (i) accelerated the vesting of all of Mr. Bailey’s unvested restricted stock units and stock options that were previously granted to Mr. Bailey in May 2020 in connection with his hiring as interim Chief Executive Officer and (ii) granted Mr. Bailey stock options to purchase 840,000 shares of the Company’s common stock and granted restricted stock units for 160,000 shares of common stock, each of which will vest in equal installments over a three year period beginning on the Effective Date.
Pursuant to the Bailey Agreement, in the event Mr. Bailey’s employment is terminated by the Company without Cause, by Mr. Bailey for Good Reason or as a result of Mr. Bailey’s death or permanent disability, subject to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Bailey will be entitled to receive a lump sum cash payment equal to 100% of Mr. Bailey’s annual base salary then in effect plus his pro-rated target annual performance bonus for the then-current year and any bonus for the prior year which was earned but not yet paid.
In the event Mr. Bailey’s employment is terminated by the Company without Cause or by Mr. Bailey for Good Reason within 12 months after a Change in Control, subject to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Bailey will be entitled to (i) receive a lump sum cash payment equal to 100% of Mr. Bailey’s annual base salary then in effect, (ii) receive 100% of his target annual performance bonus for the then-current year, (iii) maintain any rights granted pursuant to any retirement, profit sharing and savings, healthcare, 401(k) and any other benefit plans sponsored by the Company and (iv) full acceleration of vesting of any of his unvested equity awards.
Terry Coelho, Executive Vice President and Chief Financial Officer - Ms. Coelho’s employment agreement, dated January 10, 2019, as amended on December 4, 2020, includes a base salary of $385,000, target bonus of up to 45% of her base salary (which is subject to modification by our Compensation Committee), and other employee benefits. During 2021, the Compensation Committee approved to adjust Ms. Coelho's base salary to $445,158 and her annual bonus target increased to 50% of her annual base salary, which increases are consistent with our compensation philosophy.
Except in the event of a termination by us for Cause (as defined in the agreement), we or Ms. Coelho may terminate her agreement for any reason or no reason upon thirty (30) days prior written notice to the other. Ms. Coelho cannot terminate her employment for Good Reason (as defined in the agreement) unless she has provided written notice to us of the existence of the
circumstances providing grounds for termination for Good Reason within sixty (60) days of the date Ms. Coelho learns of such grounds and we have had at least thirty (30) days from the date on which such notice is provided to cure such circumstances. If Ms. Coelho does not terminate her employment for Good Reason within ninety (90) days after the date Ms. Coelho learns of the first occurrence of the applicable grounds, then Ms. Coelho will be deemed to have waived her right to terminate for Good Reason with respect to such grounds.
In the event of a termination by us for Cause or Ms. Coelho’s resignation without Good Reason, we will pay Ms. Coelho (i) the base salary earned and expenses reimbursable incurred through the date of Ms. Coelho’s termination, (ii) the prior year bonus (if applicable), and (iii) all amounts otherwise required to be paid or provided by law and shall thereafter have no further responsibility for termination or other payments to Ms. Coelho.
In the event Ms. Coelho’s employment is terminated by the Company without Cause, by Ms. Coelho for Good Reason or as a result of Ms. Coelho’s death or permanent disability, subject in each case to her signing and complying with a release agreement and the release agreement becoming effective, Ms. Coelho will be entitled to receive a lump sum cash payment equal to 100% of Ms. Coelho’s annual base salary then in effect plus her pro-rated target annual performance bonus for the then-current year.
In the event Ms. Coelho’s employment is terminated by the Company without Cause or by Ms. Coelho for Good Reason within 12 months after a Change of Control, subject to her signing and complying with a release agreement and the release agreement becoming effective, Ms. Coelho will be entitled to (i) receive a lump sum cash payment equal to either (a) 150% of Ms. Coelho’s annual base salary then in effect if the termination is without Cause or (b) 100% of Ms. Coelho’s annual base salary then in effect if the termination is by Ms. Coelho for Good Reason, plus 100% of her target annual performance bonus for the then-current year and any bonus for the prior year which was earned but not yet paid, (ii) maintain any rights granted pursuant to any retirement, profit sharing and savings, healthcare, 401(k) and any other benefit plans sponsored by the Company and (iii) full acceleration of vesting of any of her unvested equity awards.
Ms. Coelho’s employment agreement also includes 2-year non-competition and non-solicitation and confidentiality covenants. Under the terms of this agreement, she was also entitled to the following benefits: medical, dental, life, disability and 401(k).
Scott M. Plesha, President - Mr. Plesha was promoted to the role as our President and his current employment agreement, dated December 20, 2017 included a base salary of $365,000, target bonus of up to 45% of his base salary (which is subject to modification by our Compensation Committee), and other employee benefits. During 2021, the Compensation Committee approved to adjust Mr. Plesha's base salary to $413,000, which increase is consistent with our compensation philosophy.
We may terminate Mr. Plesha’s employment agreement without cause and Mr. Plesha is required to give (thirty) 30 days' notice of any resignation. We may immediately terminate Mr. Plesha’s employment agreement for Cause (as defined in the agreement). Upon the termination of Mr. Plesha’s employment for any reason, Mr. Plesha will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements.
In the event Mr. Plesha’s employment is terminated by the Company without Cause, by Mr. Plesha for Good Reason or as a result of Mr. Plesha’s death or permanent disability, subject in each case to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Plesha will be entitled to receive a lump sum cash payment equal to 100% of Mr. Plesha’s annual base salary then in effect plus his pro-rated target annual performance bonus for the then-current year.
In the event Mr. Plesha’s employment is terminated by the Company without Cause or by Mr. Plesha for Good Reason within 12 months after a Change of Control, subject to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Plesha will be entitled to (i) receive a lump sum cash payment equal to 100% of Mr. Plesha’s annual base salary then in effect, (ii) receive 100% of his target annual performance bonus for the then-current year and any bonus for the prior year which was earned but not yet paid, (iii) maintain any rights granted pursuant to any retirement, profit sharing and savings, healthcare, 401(k) and any other benefit plans sponsored by the Company and (iv) full acceleration of vesting of any of his unvested equity awards.
Mr. Plesha’s employment agreement also includes 2-year non-competition and non-solicitation and confidentiality covenants. Under the terms of this agreement, he is also entitled to the following benefits: medical, dental, life, disability and 401(k).
Thomas Smith, M.D., Chief Medical Officer- Dr. Smith’s employment agreement, dated July 23, 2018 included a base salary of $345,000, target bonus of up to 40% of his base salary (which is subject to modification by our Compensation
Committee), and other employee benefits. During 2021, the Compensation Committee approved to adjust Dr. Smith's base salary to $391,000, which increase is consistent with our compensation philosophy.
We may terminate Dr. Smith’s employment agreement without cause and Dr. Smith may resign without notice. We may immediately terminate Dr. Smith’s employment agreement for Cause (as defined in his agreement). Upon the termination of Dr. Smith’s employment for any reason, Dr. Smith will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements. If Dr. Smith is terminated during the term of the employment agreement other than for Cause, including due to his death or disability, Dr. Smith is entitled to a lump sum severance payment equal to one times the amount of his annual base salary.
In the event that Dr. Smith’s employment with the Company is terminated by the Company or its successor without Cause within six (6) months following the occurrence of a “Change of Control” (as defined in the employment agreement), Dr. Smith will be entitled to receive a one-time severance payment equal to his then current annual base salary. In addition, all unvested time-based options, RSUs or other equity securities to acquire shares of Company common stock shall immediately become fully vested and shall be exercisable to the extent provided for in the Plan.
Dr. Smith’s employment agreement also includes 2-year non-competition and non-solicitation and confidentiality covenants. Under the terms of this agreement, he is also entitled to the following benefits: medical, dental, life, disability and 401(k).
James Vollins, General Counsel, Chief Compliance Officer and Corporate Secretary- Mr. Vollins’ employment agreement, dated October 25, 2018 includes a base salary of $310,000, target bonus of up to 40% of his base salary (which is subject to modification by our Compensation Committee), and other employee benefits. During 2021, the Compensation Committee approved to adjust Mr. Vollins' base salary to $400,000 per year and his annual bonus target increased to 45% of his annual base salary, which increases are consistent with our compensation philosophy.
We may terminate Mr. Vollins’ employment agreement without cause and Mr. Vollins may resign without notice. We may immediately terminate Mr. Vollins’ employment agreement for Cause (as defined in his agreement). Upon the termination of Mr. Vollins’ employment for any reason, Mr. Vollins will continue to receive payment of any base salary earned but unpaid through the date of termination and any other payment or benefit to which he is entitled under the applicable terms of any applicable company arrangements.
In the event Mr. Vollins’ employment is terminated by the Company without Cause, by Mr. Vollins for Good Reason or as a result of Mr. Vollins’ death or permanent disability, subject in each case to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Vollins will be entitled to receive a lump sum cash payment equal to 100% of Mr. Vollins’ annual base salary then in effect plus his pro-rated target annual performance bonus for the then-current year.
In the event Mr. Vollins’ employment is terminated by the Company without Cause or by Mr. Vollins for Good Reason within 12 months after a Change of Control, subject to his signing and complying with a release agreement and the release agreement becoming effective, Mr. Vollins will be entitled to (i) receive a lump sum cash payment equal to 100% of Mr. Vollins’ annual base salary then in effect, (ii) receive 100% of his target annual performance bonus for the then-current year, (iii) maintain any rights granted pursuant to any retirement, profit sharing and savings, healthcare, 401(k) and any other benefit plans sponsored by the Company and (iv) full acceleration of vesting of any of his unvested equity awards.
In addition, pursuant to the Vollins Amendment, upon the achievement of success in a specific matter, Mr. Vollins will be eligible to receive a one-time cash bonus of up to 45% of his annual base salary and/or (ii) a one-time option grant valued at up to $250,000 that would vest 50% immediately upon grant and 50% on the first anniversary of the grant date, subject to his continued employment at such time.
Mr. Vollins’ employment agreement also includes 2-year non-competition and non-solicitation and confidentiality covenants. Under the terms of this agreement, he is also entitled to the following benefits: medical, dental, life, disability and 401(k).
Employment Agreement Termination and Release Agreement of Herm Cukier
In May 2020, the Company and Herm Cukier entered into a General Release Agreement (the “General Release Agreement”), relating to the termination of Mr. Cukier’s employment as Chief Executive Officer of the Company. In connection with the execution and delivery of the General Release Agreement, Herm Cukier was terminated as Chief Executive Officer and principal executive officer and resigned as a member of the Board of Directors of the Company, effective as of May 9, 2020 (the "Termination Date).
Pursuant to the General Release Agreement, Mr. Cukier (i) received (a) a one-time payment of $1,217,438, which was equal to two times his annual base salary; (b) a one-time payment of $236,003, which was equal to his prorated 2020 bonus; (c) a one-time payment of $45,917 for unused paid time off; (d) a one-time payment of $2,360 for benefits and (e) a one-time payment of $100,338 in exchange for waiving the 60-day advance notice provision included in Mr. Cukier's original employment.
Pursuant to the termination, (a) all unvested awards to acquire shares of Company common stock granted to Mr. Cukier under the Plan or any successor plan through an option (including, without limitation, the Initial Option) became immediately fully vested and exercisable and is exercisable over a period of three (3) years from the date of termination and (b) any restricted stock units (including, without limitation, the Initial RSUs) or other performance equity or equity-based awards (other than options) shall continue to vest and settle upon the achievement of the annual financial or performance objectives that have been set, and as are determined, by the Board of Directors;
Outstanding equity awards
The following table summarizes outstanding unexercised options and unvested restricted stock units held by each of our named executive officers, as of December 31, 2020.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS (1) STOCK AWARDS
Name Grant Date Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) Options
Exercise
Prices
($) Option
Expiration
Date Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#) Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($) Equity
Incentive Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested (#) Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
vested ($)
Jeffrey Bailey 3/9/2020 - 96,000 - 5.18 3/8/2030 - - - -
5/11/2020 160,000 (2) - - 4.23 5/10/2030 - - - -
7/30/2020 33,403 (3) 33,402 - 4.36 7/29/2030 - - - -
11/4/2020 - 840,000 - 3.60 11/3/2030 - - - -
- - - - - 16,000 (4) - - 67,200
- - - - - 5,567 (5) - - 23,381
- - - - - 160,000 (6) - - 672,000
Terry Coelho 1/15/2019 81,666 163,334 - 3.73 1/17/2029 - - - -
1/29/2020 - 158,576 - 6.17 1/28/2030 - - - -
- - - - - 36,667 (7) - - 154,001
- - - - - 30,571 (8) - - 128,398
Scott Plesha 1/31/2019 81,666 163,334 - 3.90 1/30/2029 - - - -
1/29/2020 - 158,576 - 6.17 1/28/2030 - - - -
- - - - - 20,834 (9) - 20,834 (9) 175,006
- - - - - 26,667 (7) - - 112,001
- - - - - 32,609 (8) - - 136,958
Thomas Smith, M.D. 8/1/2018 48,460 39,231 - 2.93 7/31/2028 - - - -
1/31/2019 43,333 86,667 - 3.90 1/30/2029 - - - -
1/29/2020 - 110,122 - 6.17 1/28/2030 - - - -
- - - - - 15,334 (7) - - 64,403
- - - - - 22,645 (8) - - 95,109
James Vollins 11/5/2018 - 29,826 - 3.46 11/4/2028 - - - -
1/31/2019 - 43,334 - 3.90 1/30/2029 - - - -
1/29/2020 - 121,135 - 6.17 1/28/2030 - - - -
- - - - - 7,667 (7) - 32,201
- - - - - 24,909 (8) - - 104,618
Herm Cukier 1/31/2019 540,000 - - 3.90 1/31/2029 - - - -
1/29/2020 440,490 - - 6.17 1/28/2030 - - - -
- - - - - - - 66,668 (10) 280,006
- - - - - 62,500 (7) - - 262,500
- - - - - 90,580 (8) - - 380,436
______________
(1)Unless otherwise set forth below, all stock options are time-based and vest ratably over three years following the grant date.
(2)Performance-based stock options granted to Mr. Bailey, which fully vested in November 2020 when Mr. Bailey accepted the permanent role of CEO.
(3)Time-based stock options granted to Mr. Bailey as a director, half of which vested in the first open window following the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and the remaining half of which vests in the first open window following the Company's 2021 Annual Meeting of Stockholders.
(4)RSUs vest in three equal annual installments beginning March 9, 2021.
(5)RSUs vest in the first open window following the Company's 2021 Annual Meeting of Stockholders.
(6)RSUs vest in three equal annual installments beginning November 4, 2021.
(7)RSUs vest in three equal annual installments beginning January 31, 2020.
(8)RSUs vest in three equal annual installments beginning January 29, 2021.
(9)Unvested stock awards consist of RSUs (as defined under the 2011 EIP) which are rights to acquire shares of our common stock. One-half of which are time-based and one-half of which are performance-based, all of which vest over a three-year period which began March 2018. The performance-based RSUs provide for vesting if specified net revenue and operating income goals are achieved with respect to the annual fiscal years 2018 through 2020.
(10)Performance-based RSUs provide for vesting if specified net revenue and operating income goals are achieved with respect to the annual fiscal years 2020 through 2021.
Option Exercises and Stock Vested
The following information sets forth stock options exercised by the executive officers during the year ended December 31, 2020:
OPTION AWARDS STOCK AWARDS
Name Number of
Shares
Acquired on
Exercise (#) Value
Realized on
Exercise ($) Number of
Shares
Acquired on
Vesting (#) Value
Realized on
Vesting ($)
Jeffrey Bailey - - 45,567 163,507
Terry Coelho 35,703 74,976 18,333 106,881
Scott Plesha - - 71,667 271,251
Thomas Smith, M.D. - - 7,666 40,247
James Vollins 51,491 45,086 3,833 20,123
Herm Cukier 761,539 2,276,463 97,916 461,393
Pension Benefits
None of our employees participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. Our Compensation Committee may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in our company’s best interests.
Nonqualified Deferred Compensation
None of our employees participate in or have account balances in nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by us. Our Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in our company’s best interests.
Potential Payments Under Severance/Change in Control Arrangements
The table below sets forth potential payments payable to our current executive officers in the event of a termination of employment under various circumstances. For purposes of calculating the potential payments set forth in the table below, we have assumed that (i) the date of termination was December 31, 2020 and (ii) the stock price was $4.20, which was the closing market price of our common stock on December 31, 2020, the last business day of the 2020 fiscal year.
Name If Company Terminates Executive Without Cause or If Executive Resigns with Good Reason ($) Termination Without Cause Following a Change in Control ($) If Executive Resigns With Good Reason Following a Change in Control ($) Termination Following Death or Disability ($)
Jeffrey Bailey
Cash severance payment $ 650,000 $ 650,000 $ 650,000 $ 650,000
Bonus (3) - - - -
Accrued and unused vacation time 7,688 7,688 7,688 7,688
Acceleration of options (1) - 504,000 504,000 -
Acceleration of restricted stock units (2) - 762,581 762,581 -
Total Bailey cash and benefits $ 657,688 $ 1,924,269 $ 1,924,269 $ 657,688
Terry Coelho
Cash severance payment 399,245 598,868 399,245 399,245
Bonus 179,660 179,660 179,660 179,660
Accrued and unused vacation time 23,033 23,033 23,033 23,033
Acceleration of options (1) - 33,561 33,561 -
Acceleration of restricted stock units (2) - 282,400 282,400 -
Total Coelho cash and benefits $ 601,938 $ 1,117,522 $ 917,899 $ 601,938
Scott Plesha
Cash severance payment $ 394,060 $ 394,060 $ 394,060 $ 394,060
Bonus 177,327 177,327 177,327 177,327
Accrued and unused vacation time 22,734 22,734 22,734 22,734
Acceleration of options (1) - 73,500 73,500 -
Acceleration of restricted stock units (2) - 423,965 423,965 -
Total Plesha cash and benefits $ 594,121 $ 1,091,586 $ 1,091,586 $ 594,121
Thomas Smith, MD.
Cash severance payment $ 376,300 $ 376,300 $ 376,300 $ 376,300
Pro-rata bonus 150,520 150,520 150,520 150,520
Accrued and unused vacation time 21,710 21,710 21,710 21,710
Acceleration of options (1) - 188,468 188,468 -
Acceleration of restricted stock units (2) - 159,512 159,512 -
Total Smith cash and benefits $ 548,530 $ 896,510 $ 896,510 $ 548,530
James Vollins
Cash severance payment $ 375,000 $ 375,000 $ 375,000 $ 375,000
Bonus 168,750 168,750 168,750 168,750
Accrued and unused vacation time 21,635 21,635 21,635 21,635
Acceleration of options (1) - 35,071 35,071 35,071
Acceleration of restricted stock units (2) - 136,819 136,819 0
Total Vollins cash and benefits $ 565,385 $ 737,275 $ 737,275 $ 600,456
Herm Cukier (4)
Cash severance payment $ 1,556,139 $ - $ - $ -
Accrued and unused vacation time 45,917 - - -
Acceleration of options (1) 162,000 - - -
Total Mr. Cukier cash and benefits $ 1,764,056 $ - $ - $ -
___________
(1)Determined by taking the excess of the fair market value of our common stock on December 31, 2020, less the exercise price of each accelerated option, multiplied by the number of unvested shares subject to outstanding options.
(2)Determined by taking the fair market value of our common stock on December 31, 2020, multiplied by the number of shares subject to invested RSUs.
(3)Target bonus eligibility for Mr. Bailey begins in 2021.
(4)Amounts reported reflected amounts actually paid or payable to Mr. Cukier in connection with his departure on May 9, 2020.
For each of our executive officers, in their employment agreements the term “change of control” means the occurrence of any one or more of the following events (it being agreed that, with respect to paragraphs (i) and (iii) of this definition below, a “change of control” shall not be deemed to have occurred if the applicable third party acquiring party is an “affiliate” of our company within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended):
(i) An acquisition (whether directly from our company or otherwise) of any voting securities of our company by any person or entity, immediately after which such person or entity has beneficial ownership of forty percent (40%) or more of the combined voting power of our then outstanding voting securities.
(ii) The individuals who, as of the date hereof, are members of our board of directors’ cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting our company, to constitute at least fifty-one percent (51%) of the members of our board of directors; or
(iii) Approval by our board of directors and, if required, our stockholders of, or our execution of any definitive agreement with respect to, or the consummation of (it being understood that the mere execution of a term sheet, memorandum of understanding or other non-binding document shall not constitute a change of control):
(A) A merger, consolidation or reorganization involving our company, where either or both of the events described in clauses (i) or (ii) above would be the result;
(B) A liquidation or dissolution of or appointment of a receiver, rehabilitator, conservator or similar person for, or the filing by a third party of an involuntary bankruptcy against, our company; or
(C) An agreement for the sale or other disposition of all or substantially all of the assets of our company to any person or entity (other than a transfer to a subsidiary of our company).
The cash component (as opposed to option accelerations) of any change of control payment would be structured as a one-time cash severance payment.
CEO Pay Ratio - 33:1
We believe our executive compensation program must be consistent and internally equitable to motivate our employees to perform in ways that enhance shareholder value. We are committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay of our executive officers and the pay of our non-executive employees. The Compensation Committee reviewed a comparison of Jeff Bailey’s, our Chief Executive Officer (which we refer to for these purposes as the CEO), total compensation in fiscal year 2020 to that of the median annual compensation of all other company employees for the same period. The calculation of annual total compensation of all employees was determined in the same manner as the “Total Compensation” shown for our CEO in the “Summary Compensation Table” on page 44 of this Report. Pay elements that were included in the annual total compensation for each employee are:
•annualized salary in fiscal year 2020;
•annual bonus payment received for performance in fiscal year 2020;
•grant date fair value of stock option grants and RSU grants in fiscal year 2020;
•incremental expense associated with the acceleration of option and RSU vesting in 2020;
•annualized health benefits in fiscal year 2020;
•company-paid 401(k) Plan match made during fiscal year 2020; and
•phone allowance paid in fiscal year 2020.
Our calculation includes all employees as of December 31, 2020.
We determined our median employee by: (i) calculating the annual total compensation described above for each of our employees, (ii) ranking the annual total compensation of all employees except for the CEO from lowest to highest (a list of 164 employees), and we used ranked employee number 82 on the list as our (“Median Employee”). In 2020, we experienced a minimal decrease in our headcount. The annualized total compensation for fiscal year 2020 for our CEO was $4,249,077 and for the Median Employee was $127,927. We estimate that the resulting ratio of our CEO’s pay to the pay of our Median Employee for fiscal year 2020 is 33 to 1.
Compensation of Directors Summary Table
DIRECTOR COMPENSATION
2020 Director Compensation Table
The following table presents and summarizes the compensation of our non-employee directors for service during 2020.
Name (a) Fees
Earned
or Paid
in Cash
($) Stock
Awards
($) (12) Option
Awards
($) (12) Non-Equity
Incentive Plan
Compensation
($) Non-Qualified
Deferred
Compensation
Earnings ($) All Other
Compensation
($) Total ($)
Peter S. Greenleaf (1) 98,750 - - - - - 98,750
Mark A. Sirgo, PharmD. (2) 45,000 33,120 (3) 99,840 (4) - - - 177,960
Frank E. O’Donnell, Jr. (5) 27,692 - - - - - 27,692
W. Mark Watson (6) 66,557 - - - - - 66,557
Todd C. Davis (7) 75,000 - - - - - 75,000
Kevin Kotler (8) 62,500 - - - - - 62,500
Vanila Singh, M.D. MAMC (9) 58,253 55,894 (10) 168,497 (11) - - - 282,644
_________
(1)Mr. Greenleaf holds 64,164 unexercised options and 52,500 unvested RSUs.
(2)Dr. Sirgo holds 70,500 unexercised options and 4,000 unvested RSUs.
(3)The stock awards disclosed in this item consists of 8,000 RSUs issued in 2020 with a FMV of $4.14 for serving on the board which half vested in 2020 and the remaining half vest in 2021.
(4)The stock options disclosed in this item consists of 48,000 options granted in 2020 with a FMV of $2.08 which half vested in 2020 and the remaining half vest in 2021.
(5)Dr. O'Donnell, who retired from our Board of Directors in May 2020, holds a remaining 30,000 unvested RSUs.
(6)Mr. Watson holds 54,740 unexercised options and 45,000 unvested RSUs.
(7)Mr. Davis holds 48,123 unexercised options and 45,000 unvested RSUs.
(8)Mr. Kotler holds 22,500 unexercised options and 45,000 unvested RSUs.
(9)Dr. Vanila Singh holds 177,008 unexercisable options and 17,417 unvested RSUs.
(10)The stock awards disclosed in this item consists of 13,501 RSUs issued in 2020 with a FMV of $4.14 for serving on the board which half vested in 2020 and the remaining half vest in 2021.
(11)The stock options disclosed in this item consists of 81,008 options issued in 2020 with a FMV of $2.08 for serving on the board which half vested in 2020 and the remaining half vest in 2021.
(12)The reported amounts represent the aggregate grant date fair value of the awards computed in accordance with Financial Accounting Standards Board Account Standards Codification Topic 718, Stock Compensation, as modified or supplemented, or FASB ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in Note 11 to our Consolidated Financial Statements for the year ended December 31, 2020 included in our Annual Report.
Narrative to Director Compensation
The Compensation Committee of our board of directors reviews the Director Remuneration Policy, which establishes the compensation our directors earn for serving on our board of directors and individual committees. The policy during 2020 follows (all annual cash retainers are paid quarterly in arrears):
•$45,000 annual cash retainer to each board member.
•$25,000 annual cash retainer to the Lead Director.
•$20,000 annual cash retainer to the Chairman of the Audit Committee.
•$15,000 annual cash retainer to the Chairman of the Compensation Committee.
•$10,000 annual cash retainer to the Chairman of the Nominating & Corporate Governance Committee.
•$10,000 annual cash retainer to each non-Chairman Audit Committee member.
•$7,500 annual cash retainer to each non-Chairman Compensation Committee member.
•$5,000 annual cash retainer to each non-Chairman Nominating & Corporate Governance Committee member.
•$7,500 annual cash retainer to each Special Committee member.
•8,000 restricted stock units of our common stock per year, to each director, which half vest in the first open window following the filing of the Company's Quarterly Report on Form 10-Q after the grant, and the remaining half vest in the first open window following the Company's Annual Meeting of Stockholders in the subsequent year.
•5,000 additional restricted stock units of our common stock per year to the Lead Director, which half vest in the first open window following the filing of the Company's Quarterly Report on Form 10-Q after the grant, and the remaining half vest in the first open window following the Company's Annual Meeting of Stockholders in the subsequent year.
•48,000 stock options of our common stock per year, to each director, which half vest in the first open window following the filing of the Company's Quarterly Report on Form 10-Q after the grant, and the remaining half vest in the first open window following the Company's Annual Meeting of Stockholders in the subsequent year.
•5,000 additional stock options of our common stock per year to the Lead Director, which half vest in the first open window following the filing of the Company's Quarterly Report on Form 10-Q after the grant, and the remaining half vest in the first open window following the Company's Annual Meeting of Stockholders in the subsequent year.
•New directors will earn a pro-rated portion (based on months to be served in the fiscal year in which they join) of cash and restricted stock units.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the Compensation Committee of our board of directors, or other committee serving an equivalent function. None of the members of our Compensation Committee has ever been our employee or one of our officers.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
This Report was submitted by the following members of the Compensation Committee of the Board:
Todd C. Davis, Chairman
Peter C. Greenleaf
Kevin Kotler
Dr. Vanila Singh
The information contained in the foregoing Compensation Committee Report shall not be deemed to be “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into a future filing under the Securities Act or the Exchange Act, except to the extent BioDelivery Sciences International, Inc. specifically incorporates this Report by reference therein.
Compensation Discussion and Analysis
The Compensation Committee of our board of directors has the responsibility to review, determine and approve the compensation for our executive officers. Further, the Compensation Committee oversees our overall compensation strategy, including compensation policies, plans and programs that cover all employees.
We employed six executive officers, each of whom served as a “Named Executive Officer” (or NEO) for purposes of SEC reporting during 2020: (1) Jeffrey Bailey, our Chief Executive Officer; (2) Terry Coelho, our Executive Vice President and Chief Financial Officer; (3) Scott Plesha, our President and Chief Commercial Officer; (4) Dr. Thomas Smith, our Chief Medical Officer; (5) James Vollins, our General Counsel, Chief Compliance Officer and Corporate Secretary; and (6) Herm Cukier, our former Chief Executive Officer who served until May 2020.
This Compensation Discussion and Analysis sets forth a discussion of the compensation for our NEOs as of December 31, 2020 as well as a discussion of our philosophies underlying the compensation for our NEOs and our employees generally.
Objectives of Our Compensation Program
The Compensation Committee’s philosophy seeks to align the interests of our stockholders, officers and employees by tying compensation to individual performance and the Company’s performance, both short-term in the form of salary and annual cash bonus payments, and long-term in the form of incentive equity awards. Our compensation programs enhance our ability to achieve the following objectives, in each case in a manner consistent with companies comparable to ours:
•attract and retain qualified and talented individuals;
•share the risks and rewards of our business with our NEOs and employees; and
•provide reasonable and appropriate incentives to our team for building long-term value within our company.
We strive to be competitive with other similarly-situated companies in our industry. The process of developing and commercializing pharmaceutical products is a long-term proposition and outcomes may not be measurable for several years. Therefore, to build long-term value for our stockholders, and to achieve our business objectives, we believe that we must compensate our officers and employees in a competitive and fair manner that reflects our current activities but also reflects contributions to building long-term value.
We utilize the services of the Willis Towers Watson (which we refer to herein as WTW) to review compensation programs of peer companies to assist the Compensation Committee in determining the compensation levels for our NEOs, as well as for other employees of ours. WTW is a recognized independent consulting company and services clients throughout the U.S.
In collaboration with our compensation consultant, our Compensation Committee establishes a list of peer companies to best ensure that we are compensating our executives on a fair and reasonable basis, as set forth above under the heading “Objectives of our Compensation Program.” We also utilize industry survey data for below-executive level personnel, which data focuses on similarly-sized life science companies in the Southeastern region of the U.S. The availability of peer data is used by the Compensation Committee strictly as a guide in determining compensation levels regarding salaries, cash bonuses and annual equity grants to all employees. However, the availability of this data does not imply that the Compensation Committee is under any obligation to exactly follow peer companies in compensation matters.
The companies that comprise our peer group are selected and reviewed no less frequently than biennially. The current peer group used to evaluate compensation for the fiscal year ended December 31, 2020 was approved by the Compensation Committee in September 2019 and includes the following companies:
Company
Adamis Pharmaceuticals Corporation Flexion Therapeutics, Inc,
ANI Pharmaceuticals, Inc. Neos Therapeutics, Inc.
Antares Pharma, Inc. OptiNose, Inc.
Aquestive Therapeutics, Inc. Rigel Pharmaceuticals, Inc.
Assertio Holdings, Inc. Supernus Pharmaceuticals, Inc.
Collegium Pharmaceutical Vanda Pharmaceuticals, Inc.
Eagle Pharmaceuticals, Inc.
With respect to our employees and non-senior management, we will also take into consideration regional market data in determining appropriate compensation packages, and we have relied on WTW to provide us with such data.
Elements of Our Compensation Program and Why We Chose Each
Main Compensation Components
Our company-wide compensation program, in which our NEOs also participate, is broken down into four main components: base salary, performance cash bonuses, long-term compensation in the form of stock options and/or restricted stock units (or RSUs) and benefit programs. We believe these components constitute the minimum essential elements of a competitive compensation package in our industry. We also provide each of our executive officers with severance and change in control arrangements because we believe that, in a competitive market for talent, severance arrangements are necessary to attract and retain high quality executives. In addition, the change in control benefit allows and incentivizes executives to maintain their focus on our business during a period when they otherwise might be distracted.
Salary
Base salary is used to recognize the experience, skills, knowledge and responsibilities required of our NEOs as well as recognizing the competitive nature of the biopharmaceutical industry. This is determined partially by evaluating our peer companies as well as the degree of responsibility and experience levels of our NEOs and their overall contributions to our company. Base salary is determined in advance whereas the other components of compensation are awarded in varying degrees following an assessment of the performance of a NEO. This approach to compensation reflects the philosophy of our board of directors and its Compensation Committee to emphasize and reward, on an annual basis, performance levels achieved by our NEOs, and to provide appropriate retention incentives based on future performance.
Performance Cash Bonus Plan
We have a performance cash bonus plan under which bonuses are paid to our NEOs based on achievement of our performance goals and objectives established by the Compensation Committee and/or our board of directors as well as on individual performance. The bonus program is intended to: (i) strengthen the connection between individual compensation and company-wide achievements; (ii) encourage teamwork among all disciplines within our company; (iii) reinforce our pay-for-performance philosophy by awarding higher bonuses to higher performing employees; and (iv) help ensure that our cash compensation is competitive.
Based on their employment agreements, each NEO is assigned a target payout under the performance cash bonus plan, expressed as a percentage of base salary for the year. Actual payouts under the performance cash bonus plan are based on the achievement of corporate performance goals and an assessment of individual performance. For the NEOs, the corporate goals receive the highest weighting to ensure that the bonus system for our management team is closely tied to our corporate performance. Each employee also has specific individual goals and objectives as well that are tied to the overall corporate goals. For employees, mid-year and end-of-year progress is reviewed with the employees’ managers.
Depending on our company’s cash position, the Compensation Committee and our board of directors have the discretion after consulting with our NEOs to not pay (or pay more limited) cash bonuses in order that we may conserve cash and support commercialization efforts. Regardless of our cash position, we consistently grant annual merit-based stock options (and, more recently in the case of senior executives, RSUs) to continue incentivizing both our senior management and our employees as described below.
Equity Incentive Compensation
We view long-term compensation as a tool to align the interests of our NEOs and employees generally with the creation of stockholder value, to motivate our employees to achieve and exceed corporate and individual objectives and to encourage them to remain employed by us. Our current equity program consists of stock options and RSUs, which generally vest in annual increments over three years and performance-based awards as described below. While cash compensation is a significant component of employees’ overall compensation, the Compensation Committee and our board of directors (as well as our NEOs) believe that the driving force of any employee working in a growing pharmaceutical company should be strong equity participation. We believe that this not only creates the potential for substantial longer term corporate value but also serves to motivate employees and retain their loyalty and commitment with appropriate personal compensation over a longer period of time.
Time-based vesting. The Compensation Committee believes that because time-vested stock options and RSUs have a three-year vesting schedule that begins one year after the date of the award, the equity grants constitute a significant retention incentive and a tool to foster continuity of management, an important factor for a company with a relatively low number of employees.
Performance-based vesting. Based on the Compensation Committee’s review in 2017 of market practices, pronouncements by corporate governance advisory services and discussions with our institutional investors, one-half of the annual equity awards granted to senior executives (including our NEOs) in February 2018, were performance-based RSUs that vest over a three-year period based on the level of achievement of specified predetermined net revenue and operating income targets, with the remaining one-half being time-vested as described above.
In January 2021, the Compensation Committee determined that the remaining 1/3rd of the 2018 performance-based RSUs would vest at a rate of 100% according to the achievement of the aforementioned targets. Such RSUs will be settled in the first open window after the filing of our Annual Report on Form 10-K.
During 2019 and 2020, we granted solely time-based equity incentive awards.
Post-Termination Payments
In addition to the main components of compensation outlined above, we also provide contractual severance and/or change in control benefits to the NEOs. The change in control benefits for all applicable persons has a “double trigger.” A double-
trigger means that the executive officers will receive the change in control benefits described in the agreements only if there is both (1) a Change in Control of our company (as defined in the agreements) and (2) a termination by us of the applicable person’s employment “without cause” or a resignation by the applicable persons for “good reason” (as defined in the agreements) within a specified time period prior to or following the Change in Control. We believe this double trigger requirement creates the potential to maximize stockholder value because it prevents an unintended windfall to management as no benefits are triggered solely in the event of a Change in Control while providing appropriate incentives to act in furtherance of a change in control that may be in the best interests of the stockholders. We believe these severance or change in control benefits are important elements of our compensation program that assist us in retaining talented individuals at the executive and senior management levels and that these arrangements help to promote stability and continuity of our executives and senior management team. We also believe that the interests of our stockholders will be best served if the interests of these members of our management are aligned with theirs. Furthermore, we believe that providing change in control benefits lessens or eliminates any potential reluctance of members of our management to pursue potential change in control transactions that may be in the best interests of the stockholders. Finally, we believe that it is important to provide severance benefits to members of our management to promote stability and to focus on the job at hand.
Other Benefits
We also provide benefits to the executive officers that are generally available to all regular full-time employees of ours, including our medical and dental insurance, life insurance and a 401(k) match for all individuals who participate in the 401(k) plan. Currently, we do not provide any perquisites to any of our NEOs. Further, we do not have pension arrangements or post-retirement health coverage for our executive officers or employees. We also do not have deferred compensation plans other than allowing senior executive recipients of RSUs to defer payment of RSUs that may vest in future years, subject to compliance with Section 409A of the Internal Revenue Code (or the Code) and related rules.
Determination of Compensation Amounts
Many factors impact the determination of compensation amounts for our NEOs, including the individual’s role in our company and individual performance, length of service with us, competition for talent, individual compensation package, assessments of internal pay equity and external industry data. Stock price performance has generally not been a significant factor in determining annual compensation because the price of our common stock is subject to a variety of factors outside of our control.
Determination of Base Salaries
As a guideline for NEO base salary, we perform formal benchmarking against respective comparable positions in our established peer group. Our guideline is to set targeted NEO salary ranges between the 25th and 50th percentile for comparable positions within our peer group. We then adjust salaries based on our assessment of our NEOs’ levels of responsibility, experience, overall compensation structure and individual performance. The Compensation Committee has the discretion if it believes circumstances warrant, to go above the 50th percentile of the peer group. The Compensation Committee is not obliged to raise salaries purely on the availability of data. Merit-based increases to salaries of executive officers are based on our assessment of individual performance and the relationship to applicable salary ranges. Cost of living adjustments may also be a part of that assessment. The Compensation Committee, in recent years, has tended to maintain cash compensation levels at or near the 50th percentile but not to exceed that level in determining equity compensation. The emphasis on equity compensation reflects the Committee’s objective, given that we have only recently engaged in revenue generating operations, to incentivize personnel and to preserve cash in a prudent manner and yet reward personnel for outstanding performance.
Performance Cash Bonus Plan
Concurrently with the beginning of each calendar year, preliminary corporate goals that reflect our business priorities for the coming year are prepared by our NEOs with input from other officers. The draft goals are presented to the Compensation Committee and our full board at the beginning of each year and discussed, revised as necessary, and then approved by our board of directors. The Compensation Committee then reviews the final goals to determine and confirm their appropriateness for use as performance measurements for purposes of the bonus program. The goals may be re-visited during the year and potentially restated in the event of significant changes in corporate strategy or the occurrence of significant corporate events. Following the agreement of our board of directors on the corporate objectives, the goals are then shared with all employees in a formal meeting(s) and are reviewed periodically throughout the year at monthly staff meetings and quarterly board of director meetings.
The performance cash bonus framework sets forth target bonus opportunities, as a percentage of salary, based on the level of responsibility of the position, ranging up to 70% of salary for Jeffrey Bailey, our CEO, up to 50% of salary for our NEOs and up to 30% of salary for certain other officers. In setting these percentages, the Compensation Committee determined that the
above percentages were reasonable and in line with our peer group. Each employee has the opportunity to achieve a targeted amount, depending on how corporate goals and objectives are achieved, with variances on an “employee by employee” basis to be determined by our Compensation Committee in consultation with senior executives and employees’ direct reports.
Determination of Equity Incentive Compensation
To assist us in assessing the reasonableness of our equity grant amounts, historically we have reviewed information supplied by our compensation consultant. Such information included equity data from a cross-section of the companies in the above-mentioned surveys. Initially, on-hire stock option grant amounts have generally been targeted at the 25th to 50th percentile for that position or similar industry position, adjusted for internal equity, experience level of the individual and the individual’s total mix of compensation and benefits provided in his or her offer package. Initial on-hire grants typically vest over three years.
For a discussion of equity awards made in early 2021, see “Equity Awards in January 2021” under “Compensation Decisions For Performance in 2020” below.
Equity Grant Practices
All stock options and/or RSUs granted to the NEOs and other executives are approved by the Compensation Committee. Exercise prices for options are set as the closing price of our common stock on the Nasdaq Capital Market on the date of grant. RSUs granted as a specific dollar value are valued using the closing stock price on the date of grant. Grants are generally made: (i) with respect to new hire grants, on the employee’s start date and (ii) with respect to annual grants, at board of director meetings held each January or February and following annual performance reviews. However, grants have been made at other times during the year. The size of year-end grants for each NEO is assessed against our internal equity guidelines. Current market conditions for grants for comparable positions and internal equity may also be assessed. Also, grants may be made relating to promotions or job-related changes in responsibilities. In addition, on occasion, the Compensation Committee may make special awards for extraordinary individual or our company performance. Annual merit-based typically vest over three years.
Compensation Setting Process
At the first board meeting of the year, our board of directors and the Compensation Committee, review overall corporate performance and relative achievement of the corporate goals for the prior year are assessed. The relative achievement of each goal is assessed, and the summation of the individual components results in an overall corporate goal rating, expressed as a percentage.
Also, near the end of the year, the CEO evaluates the individual performance of each NEO (other than himself) and provides the Compensation Committee with an assessment of the performance of such NEO. In determining the individual performance ratings of the NEOs, we assess performance against many factors, including each NEO’s relative contributions to our corporate goals, demonstrated career growth, level of performance in the face of available resources and other challenges, and the respective officer’s department’s overall performance. This assessment is conducted in a holistic fashion, in contrast to the summation of individual components as is done to arrive at the corporate goal rating.
Following a qualitative assessment of each individual NEO’s performance, our policies provide guidelines for translating this performance assessment into a numerical rating. Both the initial qualitative assessment and the translation into a numerical rating are made by the Compensation Committee on a discretionary basis. We believe that conducting a discretionary assessment for the individual component of the NEOs’ performance provides for flexibility in the evaluation of our NEOs and their adaptability to addressing potential changes in our priorities throughout the year.
The Compensation Committee looks to the CEO’s performance assessments of the other NEOs and his recommendations regarding a performance rating for each, as well as input from the other members of our board of directors. These recommendations may be adjusted by the Compensation Committee prior to finalization. For the CEO, the Compensation Committee evaluates his performance, taking into consideration input from the other members of our board of directors, and considers the achievement of overall corporate objectives by both the CEO specifically and our company generally. The CEO is not present during the Compensation Committee’s deliberations regarding his compensation.
The CEO may also present any recommended changes to base salary and recommendations for annual equity grant amounts for NEOs and other senior executives.
The Compensation Committee has the authority to directly engage, at our expense, any compensation consultants or other advisors that it deems necessary to determine the amount and form of employee, executive and director compensation. In determining the amount and form of employee, executive and director compensation, the Compensation Committee has reviewed and discussed historical salary information as well as salaries for similar positions at comparable companies.
However, the availability of this data does not imply that the Compensation Committee is under any obligation to exactly follow peer companies’ compensation practices.
We paid consultant fees to WTW of $0.1 million in 2020. NEOs may have indirect input in the compensation results for other executive officers by virtue of their participation in the performance review and feedback process for the other executive officers.
Compensation Decisions for Performance in 2020
General Assessment of Management Performance in 2020
The Compensation Committee and our board of directors conducted the performance and compensation review for 2020 in January 2021. The Compensation Committee compared performance as elaborated below.
These non-weighted key corporate objectives for 2020 included the following:
(1) Key financial objectives including targeted revenue of $155 million, (2) commercial objectives including BELBUCA sales of $138 million, (3) EBITDA of 21% of Net Sales, and (4) organizational objectives across supply chain, finance, business development and IT.
The Compensation Committee determined that the Company had achieved 100% of all 2020 key objectives as established and exceeded expectations of targeted performance measures.
2020 Cash Bonus Calculations
After reviewing the achievement of the corporate goals and objectives for 2020 as noted above, and after taking into account the individual performance ratings of each NEO, the Compensation Committee determined that all NEOs should be awarded a cash bonus between 100-110% of their target. A cash bonus pool, equal to 105% of the aggregate of individual bonus opportunities of all other employees, was established with our executives having the authority to award individual bonuses from that pool with respect to these employees who reported to them. The cost of all such cash bonuses for 2020 performance (and paid in March 2021) was approximately $1.0 million for NEOs and approximately $1.2 million for employees.
Equity Awards in January 2021
On January 27, 2021, the total amount of stock options awarded to our NEOs and senior executives was 1,446,737 which options vest annually in one-third equal increments beginning one year after the date of grant and had an approximate Black Scholes value of $3.0 million.
The total amount of the RSUs awarded to our NEOs and senior executives was 262,369 having an approximate value on the date preceding the grant of $1.0 million based on a share price of $3.84.
All RSUs and stock options awarded in January 2021 were granted pursuant to the Plan.
Individual Compensation related to 2020 performance objectives are as follows:
Name Title 2020 Base Salary 2020 Target Bonus (%) 2020 Actual Bonus (%) of Target 2020 Actual Bonus ($) # of Stock Options # of RSUs
Jeffrey Bailey (1)
Chief Executive Officer and Director $ 650,000 -% -% $ - - -
Terry Coelho Executive Vice President and Chief Financial Officer and Treasurer $ 399,245 45% 110% $ 207,508 344,632 62,500
Scott Plesha President and Chief Commercial Officer $ 394,060 45% 100% $ 186,193 348,222 63,151
Tom Smith Chief Medical Officer $ 376,300 40% 100% $ 158,046 287,194 52,083
Jim Vollins General Counsel, Chief Compliance Officer and Corporate Secretary $ 375,000 45% 110% $ 194,906 269,244 48,828
(1) Mr. Bailey is eligible for a target bonus beginning in 2021.
Employment Agreement Termination and Release Agreement of Herm Cukier
In May 2020, the Company and Herm Cukier entered into a General Release Agreement (the “General Release Agreement”), relating to the termination of Mr. Cukier’s employment as Chief Executive Officer of the Company. In connection with the execution and delivery of the General Release Agreement, Herm Cukier was terminated as Chief Executive Officer and principal executive officer and resigned as a member of the Board of Directors of the Company, effective as of May 9, 2020 (the "Termination Date).
Pursuant to the General Release Agreement, Mr. Cukier (i) received (a) a one-time payment of $1,217,438, which was equal to two times his annual base salary; (b) a one-time payment of $236,003, which was equal to his prorated 2020 bonus; (c) a one-time payment of $45,917 for unused paid time off; (d) a one-time payment of $2,360 for benefits and (e) a one-time payment of $100,338 in exchange for waiving the 60-day advance notice provision included in Mr. Cukier's original employment.
Accounting and Tax Considerations
ASC 718. On January 1, 2006, we began accounting for share-based payments in accordance with the requirements of Accounting Standards Codification 718 (ASC 718), Share-Based Payments. To date, the adoption of ASC 718 has not impacted our stock option granting practices.
Internal Revenue Code Section 162(m). Generally, Section 162(m) of the Code (“Section 162(m)”) disallows a federal income tax deduction for public corporations of remuneration in excess of $1 million paid in any fiscal year to certain specified executive officers. For taxable years beginning before January 1, 2018 (i) these executive officers consisted of a public corporation’s chief executive officer and up to three other executive officers (other than the chief financial officer) whose compensation is required to be disclosed to stockholders under the Exchange Act because they are our most highly-compensated executive officers and (ii) qualifying “performance-based compensation” was not subject to this deduction limit if specified requirements are met.
Pursuant to the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), for taxable years beginning after December 31, 2017, the remuneration of a public corporation’s chief financial officer is also subject to the deduction limit. In addition, subject to certain transition rules (which apply to remuneration provided pursuant to written binding contracts which were in effect on November 2, 2017 and which are not subsequently modified in any material respect), for taxable years beginning after December 31, 2017, the exemption from the deduction limit for “performance-based compensation” is no longer available. Consequently, for fiscal years beginning after December 31, 2017, all remuneration in excess of $1 million paid to a specified executive will not be deductible. These changes will cause more of our compensation to be non-deductible under Section 162(m) in the future and will eliminate the Company’s ability to structure performance-based awards to be exempt from Section 162(m).
In designing our executive compensation program and determining the compensation of our executive officers, including our named executive officers, our compensation committee considers a variety of factors, including the potential impact of the Section 162(m) deduction limit. However, our compensation committee will not necessarily limit executive compensation to that which is or may be deductible under Section 162(m). The deductibility of some types of compensation depends upon the timing of an executive officer’s vesting or exercise of previously granted rights. Further, interpretations of and changes in the tax laws, and other factors beyond our compensation committee’s control also affect the deductibility of compensation. Our compensation committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its compensation goals and will continue to monitor developments under Section 162(m).
To maintain flexibility to compensate our executive officers in a manner designed to promote our short-term and long-term corporate goals, our compensation committee has not adopted a policy that all compensation must be deductible. Our compensation committee believes that our stockholders’ interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expense.
Section 409A. Section 409A of the Code generally changed the tax rules that affect most forms of deferred compensation that were not earned and vested prior to 2005. Under Section 409A, deferred compensation is defined broadly and may potentially cover compensation arrangements such as severance or change in control pay outs and the extension of the post-termination exercise periods of stock options. We take Code Section 409A into account, where applicable, in determining the timing of compensation paid to our executive officers in order to comply with, or be exempt from, its requirements.
Clawback Policy
If we are required to prepare an accounting restatement due to the material non-compliance of ours with any financial reporting requirement and/or intentional misconduct by a covered officer, then the Independent Director Committee may require any covered officer to repay to us any excess compensation.
The Independent Director Committee may take into account any factors it deems reasonable in determining whether to seek recoupment of previously paid excess compensation and how much excess compensation to recoup from individual covered officers (which need not be the same amount or proportion for every covered officer), including any conclusion by the Committee that a covered officer engaged in wrongdoing or committed grossly negligent acts or omissions. The amount and form of the compensation to be recouped shall be determined by the Independent Director Committee in its discretion, and recoupment of compensation paid as annual cash bonuses or long term incentives may be made, in the Committee’s discretion, through cancellation of vested or unvested stock options, cancellation of unvested restricted stock, cancellation of unvested restricted stock units and/or cash payment.

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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 following table sets forth, as of March 9, 2021, by: (i) each of our directors, (ii) all persons who, to our knowledge, are the beneficial owners of more than 5% of the outstanding shares of common stock, (iii) each of the executive officers, and (iv) all of our directors and executive officers, as a group. Each person named in this table has sole investment power and sole voting power with respect to the shares of common stock set forth opposite such person’s name, except as otherwise indicated. Unless otherwise indicated, the address for each person listed below is in care of BioDelivery Sciences International, Inc., 4131 ParkLake Avenue, Suite #225, Raleigh, NC 27612.
Name of Beneficial Owner Amount and Nature of
Beneficial Ownership Percentage of Class as of March 9, 2021, (1)
Deerfield Management Company, L.P. (2) 9,530,000 9.44 %
Blackrock Inc. (3) 8,214,641 8.13 %
Broadfin Capital, LLC (4) 6,777,912 6.55 %
Nantahala Capital Management (5) 5,123,671 5.07 %
Jeffrey Bailey (6) 234,303 *
Mary Theresa Coelho (7) 115,877 *
Scott M. Plesha (8) 516,065 *
Thomas Smith, M.D. (9) 221,787 *
James Vollins (10) 62,045 *
Peter S. Greenleaf (11) 93,952 *
Mark A. Sirgo, Pharm.D. (12) 1,137,595 1.13 %
W. Mark Watson (13) 85,219 *
Todd C. Davis (14) 240,146 *
Kevin Kotler (15) 6,777,912 6.55 %
Vanila Singh, M.D. MAMC (16) 84,588 *
All Directors and Officers as a group (11 persons) 9,569,489 9.16 %
_____________
* Less than 1%
(1)Based on 100,861,848 shares of Common Stock outstanding as of March 9, 2021 and shares beneficially owned by the referenced parties as described below.
(2)Based on 13G/A filed by Deerfield Management Company, L.P. with the SEC on February 12, 2021. The address for Deerfiled Management Company, L.P. is 345 Park Avenue South, 12th Floor, New York, NY 10010.
(3)Based on 13G/A filed by Blackrock Inc. with the SEC on January 29, 2021. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(4)Based on Form 4 filed jointly by Broadfin Capital, LLC and Kevin Kotler with the SEC on August 11, 2020. Includes 2,422,223 shares of Common Stock issuable upon conversion of 436 shares of Series B Preferred Stock beneficially owned by Broadfin Capital LLC. The address for Broadfin Capital, LLC and Kevin Kotler is 200 Broadhollow Road, Suite 207, Melville, NY 11747.
(5)Based on 13G/A filed by Nantahala Capital Management with the SEC on February 16, 2021. The address for Natahala Capital Management is 130 Main St, 2nd Floor, New Canaan, CT 06840.
(6)Mr. Bailey is our Chief Executive Officer and a director.
(7)Ms. Coelho is our Executive Vice President and Chief Financial Officer.
(8)Mr. Plesha is our President and Chief Commercial Officer
(9)Dr. Smith is our Chief Medical Officer
(10)Mr. Vollins is our General Counsel, Chief Compliance Officer and Corporate Secretary.
(11)Mr. Greenleaf is our Chairman of the Board and a director.
(12)Dr. Sirgo is a director.
(13)Mr. Watson is a director.
(14)Mr. Davis is a director.
(15)Mr. Kotler is a director.
(16)Dr. Vanila Singh is a director.
The following table sets forth, as of March 9, 2021, each of our directors and executive officers, (i) shares owned, (ii) options exercisable within 60 days, and (iii) RSUs vesting within 60 days, as included in the beneficial ownership table. Additionally, (i) options unexercisable and (ii) RSUs unvested are disclosed.
Included in beneficial ownership table Not included in beneficial ownership table
Name of Director or Officer Shares owned Options exercisable within 60 days RSUs vesting within 60 days Total Options unexercisable RSUs unvested
Jeffrey Bailey 35,567 193,403 5,333 234,303 969,402 176,234
Mary Theresa Coelho 30,619 85,258 - 115,877 479,445 101,215
Scott M Plesha 258,206 216,191 41,668 516,065 535,607 98,224
Thomas Smith , M.D. 19,954 201,833 - 221,787 443,174 74,847
James Vollins - 62,045 - 62,045 401,494 69,268
Peter S Greenleaf 59,788 34,164 - 93,952 30,000 52,500
Mark A Sirgo, Pharm.D. 1,091,095 46,500 - 1,137,595 24,000 4,000
W. Mark Watson 52,979 32,240 - 85,219 22,500 45,000
Todd C Davis 214,523 25,623 - 240,146 22,500 45,000
Kevin Kotler 6,777,912 (1) - - 6,777,912 22,500 45,000
Vanila Singh, M.D. MAMC 12,084 72,504 - 84,588 104,504 17,417
(1)Includes 2,422,223 shares of Series B Non-Voting Convertible Stock which are held in the account of Broadfin Healthcare Master Fund, Ltd., a private investment fund managed by Broadfin Capital, LLC, and may be deemed to be beneficially owned by Mr. Kotler, managing member of Broadfin Capital, LLC. Includes 4,355,689 shares owned by Broadfin, Capital LLC.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table indicates shares of common stock authorized for issuance under our 2019 Stock Option Incentive Plan as of December 31, 2020:
Plan category Number of securities to
be issued upon exercise
of outstanding
options,
warrants and rights (1) Weighted-
average
exercise price of
outstanding
options, warrants
and rights (2) Number of securities
remaining available
for future issuance
Equity compensation plans approved by security holders 8,001,725 4.55 10,588,973
Equity compensation plans not approved by security holders - - -
Total 8,001,725 4.55 10,588,973
(1)Includes 2,919,424 shares of common stock underlying options previously granted under our 2011 Equity Incentive Plan, as amended, which are still exercisable despite the fact that such plan expired July 2019.
(2)Weighted average exercise price does not include restricted stock units.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
As of December 31, 2001, our board of directors appointed an audit committee consisting of independent directors. This committee, among other duties, is charged to review, and if appropriate, ratify all agreements and transactions which had been entered into with related parties, as well as review and ratify all future related party transactions. The audit committee and/or
our independent directors independently reviewed, ratified and/or approved, as the case may be, the agreements described below. From time to time, after compliance with our internal policies and procedures, we have entered into related party contracts, some of which were amended subsequently in accordance with the same policies and procedures.
We are currently not a party to any related party transactions.
As a matter of corporate governance policy, we have not and will not make loans to officers or loan guarantees available to “promoters” as that term is commonly understood by the SEC and state securities authorities.
All future transactions between us and our officers, directors or five percent stockholders, and respective affiliates will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent directors who do not have an interest in the transactions and who had access, at our expense, to our legal counsel or independent legal counsel.
To the best of our knowledge, other than as set forth above, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
Audit Fees. The aggregate fees billed by Ernst & Young for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the year ended December 31, 2020 totaled $345,000.
The aggregate fees billed by Cherry Bekaert LLP for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the year ended December 31, 2019 totaled $234,000.
The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings.
Audit-Related Fees. The aggregate fees billed by Cherry Bekaert LLP for audit-related fees for the years ended December 31, 2020 and 2019 were $30,600 and $105,775, respectively. The fees were provided in consideration of services consisting of review and update procedures associated with registration statements and other SEC filings.
Tax Fees. The aggregate fees billed by Cherry Bekaert LLP for professional services rendered for tax compliance for the years ended December 31, 2020 and 2019 were $88,150 and $39,550, respectively. The aggregate fees billed by Grant Thornton LLP for professional services rendered for tax compliance for the year ended December 31, 2019 was $42,829. The fees were provided in consideration of services consisting of preparation of tax returns and related tax advice.
All Other Fees. None
The Audit Committee of our board of directors has established its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit and non-audit services provided by Ernst & Young in 2020. Consistent with the Audit Committee’s responsibility for engaging our independent auditors, all audit and permitted non-audit services require pre-approval by the Audit Committee. The full Audit Committee approves proposed services and fee estimates for these services. The Audit Committee chairperson has been designated by the Audit Committee to approve any audit-related services arising during the year that were not pre-approved by the Audit Committee. Any non-audit service must be approved by the full Audit Committee. Services approved by the Audit Committee chairperson are communicated to the full Audit Committee at its next regular meeting and the Audit Committee reviews services and fees for the fiscal year at each such meeting. Pursuant to these procedures, the Audit Committee approved the foregoing services provided by Ernst & Young.
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.
4.1* Description of the registrant's securities registered pursuant to Section 12 of the Securities Exchange Act of 1934
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 Employment Agreement, dated May 2, 2018, between the Company and Herm Cukier, filed with Form 8-K, dated May 8, 2018.
10.19 Director Indemnification Agreement, dated May 2, 2018, by and between the Company and Herm Cukier, filed with Form 8-K, dated May 8, 2018.
10.20 Confidentiality, Intellectual Property and Non-Competition Agreement, dated May 2, 2018, between the Company and Herm Cukier, filed with Form 8-K, dated May 8, 2018.
10.21 Conditional Offer of Employment, dated July 20, 2018, between the Company and Thomas Smith, filed with Form 10-Q, dated November 8, 2018.
10.27+ Exclusive License Agreement dated, April 4, 2019, between the Company and Shionogi, Inc.,filed with Form 8-K, dated April 10, 2019.
10.23 Loan Agreement dated May 23, 2019 between the Company and Biopharma Credit PLC, filed with Form 10-Q, dated August 8, 2019.
10.24 2019 Stock Option and Incentive Plan, filed with DEF14A, dated June 17, 2019.
10.25 Form of Incentive Stock Option Agreement under the 2019 Stock Option and Incentive Plan, filed with Form 10-Q, dated August 8, 2019.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 First Amendment to Offer Letter, dated October 21, 2020, between the Company and James Vollins*.
10.31 First Amendment to Offer Letter, dated November 3, 2020, between the Company and Terry Coelho*.
10.32 First Amendment to Promotion Letter, dated November 4, 2020, between the Company and Scott Plesha*.
10.33 Amended and Restated Employment Agreement, dated November 4, 2020, between the Company and Jeffrey Bailey*.
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.
‡ Confidential treatment extension of confidential treatment previously granted for certain portions of this exhibit pursuant to 17 C.F.R. Sections 200.8(b)(4) and 240.24b-2 is currently pending with the Securities and Exchange Commission.