UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED December 31, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001‑13111

ASSERTIO THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)	94‑3229046 (I.R.S. Employer Identification No.)
100 South Saunders Road, Suite 300, Lake Forest, Illinois (Address of Principal Executive Offices)	60045 (Zip Code)

Registrant’s telephone number, including area code: (224) 419‑7106

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, $0.0001 par value	ASRT	The Nasdaq Stock Market LLC

Title of each class:		Name of each exchange on which registered:
Common Stock, $0.0001 par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý x No ¨ o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý x No ¨ o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ý	Non‑accelerated filer ¨	Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ¨ No ý

The aggregate market value of the shares of common stock held by non‑affiliates of the registrant, computed by reference to the closing price as reported on the Nasdaq Stock Market as of June 2928, ~~2018~~2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $~~423~~220.28 million.

The number of shares outstanding of the registrant’s common stock, $0.0001 par value, as of March 1 2, ~~2019~~2020 was 6481,~~263~~288,~~988~~229.

Documents Incorporated by Reference

Part III of this Annual Report on Form 10-K incorporates by reference portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders, which Proxy Statement will be filed with the United States Securities and Exchange Commission within 120 days after the end of the registrant’s 2019 fiscal year.

Table of Contents

ASSERTIO THERAPEUTICS, INC.

FORM 10‑K FOR THE FISCAL YEAR ENDED DECEMBER 31, ~~2018~~2019

TABLE OF CONTENTS




PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Mine Safety Disclosures

PART II
Item 5.	Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information

PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accountant Fees and Services

PART IV
Item 15.	Exhibits and Financial Statement Schedules
Item 16.	Form 10-K Summary
	Signatures

Table of Contents

NOTE REGARDING FORWARD‑LOOKING STATEMENTS

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

• ~~the~~our ~~commercial~~ability ~~success~~to ~~and~~successfully ~~market~~pursue ~~acceptance~~business ofdevelopment, ~~our~~strategic ~~products~~partnerships, and ~~product~~investment ~~candidate,~~opportunities ~~long-acting~~to ~~cosyntropin~~build and grow for the future;

• the commercial success ofand ~~Collegium~~market ~~Pharmaceutical,~~acceptance ~~Inc.~~of ~~(Collegium)~~our ~~in commercializing NUCYNTA® ER and NUCYNTA®~~products;

• the ~~reversal~~outcome ~~or any successful appeal~~ of ~~the~~our ~~court’s~~opioid-related ~~favorable~~investigations, ~~ruling in~~ our ~~patent~~opioid-related ~~infringement~~ litigation ~~against~~brought ~~the~~by ~~filers~~state ofand ~~Abbreviated~~local ~~New~~governmental ~~Drug~~entities ~~Applications~~and ~~(each~~private parties, anand ~~ANDA)~~our toinsurance, ~~market~~antitrust ~~generic~~and ~~versions~~other oflitigation, ~~NUCYNTA ER~~ and ~~NUCYNTA~~the incosts ~~the~~and ~~United~~expenses ~~States~~associated ~~(U.S.)~~therewith;


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

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


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


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

• our plans to acquire, in-license or co-promote other products, and/or acquire companies;

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

• approval of regulatory filings, including filings for long-acting cosyntropin;


•	our ability to raise additional capital, if necessary;


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


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

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

• ~~the outcome of both~~ our ~~opioid-related~~ability ~~investigations,~~to ~~our~~attract ~~opioid-related litigation brought by state~~ and ~~local~~retain ~~governmental~~key ~~entities~~executive ~~and private parties, and our insurance litigation, and the costs and expenses associated therewith;~~leadership.

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

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

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward‑looking statements include those more fully described in “ITEM 1A. RISK FACTORS” and elsewhere in this Annual Report on Form 10‑K. Forward looking statements are made as of the date of this report. Except as required by law, we assume no obligation to update any forward‑looking statement, or to revise any forward‑looking statement to reflect events or developments occurring after the date of this Annual Report on Form 10‑K, even if new information becomes available in the future. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in any such forward‑looking statement.

Table of Contents

PART I

ITEM 1. BUSINESS

Our Company

Assertio Therapeutics, Inc. (Assertio or the Company) is a leading diversified, specialty pharmaceutical company focused on ~~neurology~~distinctive products that offer enhanced therapeutic options for patients in need, ~~orphan~~while ~~and~~maintaining ~~specialty~~the ~~medicines~~highest ethical standards in all our business practices. ~~Our~~ The Company’s current specialty ~~pharmaceutical~~pharmaceuticals business includes CAMBIA®(diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug for the ~~following~~acute ~~three~~treatment ~~products~~of migraine attacks, acquired by the Company in December 2013, and Zipsor® (diclofenac potassium liquid filled capsules), a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain, acquired by the Company in June 2012, both of which, weare ~~market~~marketed in the United States (U.S.):.

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

•In ~~CAMBIA®~~2017, ~~(diclofenac~~the ~~potassium~~Company ~~for~~announced ~~oral~~that ~~solution),~~it was in the process of transforming into a ~~non-steroidal~~leading ~~anti-inflammatory~~diversified, ~~drug~~specialty ~~for~~pharmaceutical ~~the~~company ~~acute~~with ~~treatment~~a goal of ~~migraine~~rapidly ~~attacks~~deleveraging its balance sheet, ~~that~~growing weits ~~acquired~~core inbusiness, ~~December~~and ~~2013~~opportunistically building for the future via business development. The Company has completed the following transactions to advance toward achieving its stated goals:

• ~~Zipsor®~~On ~~(diclofenac~~December ~~potassium~~4, ~~liquid~~2017, ~~filled~~the ~~capsules~~Company announced a commercialization agreement with Collegium Pharmaceutical, Inc. (Collegium), apursuant ~~non-steroidal~~to ~~anti-inflammatory~~which ~~drug~~the ~~for~~Company granted Collegium the ~~treatment~~right to commercialize the NUCYNTA franchise of ~~mild~~products in the U.S. (the Commercialization Agreement). Pursuant to ~~moderate~~the ~~acute~~Commercialization ~~pain~~Agreement, ~~that~~Collegium weassumed ~~acquired~~all incommercialization ~~June~~responsibilities ~~2012~~for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and the Company received royalty on all NUCYNTA revenues based on certain net sales thresholds.

We• ~~also~~On ~~have~~August 13, 2019, the ~~exclusive~~Company ~~rights~~entered tointo ~~market~~separate, ~~long-acting~~privately ~~cosyntropin~~negotiated ~~(synthetic~~exchange ~~adrenocorticotropic~~agreements ~~hormone,~~(the orExchange ~~ACTH~~Agreements) inwith ~~the~~a ~~U.S.~~limited ~~and~~number ~~Canada. Long-acting~~of ~~cosyntropin~~holders isof anAssertio’s ~~alcohol-free~~2.50% ~~formulation~~Convertible ofNotes adue ~~synthetic~~2021 ~~analogue~~(the of2021 ~~ACTH~~Notes). In ~~February~~Pursuant ~~2019,~~to ~~notification~~the ofExchange ~~acceptance~~Agreements, ~~for~~Assertio ~~filing~~exchanged ~~was~~approximately ~~received~~$200 ~~from~~million ~~the~~aggregate ~~U.S.~~principal ~~Food~~amount ~~and~~of ~~Drug~~Exchanged ~~Administration~~Notes ~~(FDA)~~ for ~~our~~a ~~505(b)(2)~~combination ~~New~~of ~~Drug Application~~ (~~NDA~~a) ~~for~~its ~~our~~new ~~novel~~5.00% ~~injectable~~Convertible ~~formulation~~Senior ofNotes ~~long-acting~~due ~~cosyntropin. We~~August 15, ~~together~~2024 ~~with~~(the ~~our~~2024 ~~development partner~~Notes), ~~seek~~(b) ~~approval~~a ~~for~~cash ~~the~~payment ~~use~~plus ofaccrued ~~this~~but ~~product~~unpaid asinterest aon ~~diagnostic~~the ~~drug~~Exchanged inNotes, ~~the~~and ~~screening~~(c) ofan ~~patients~~agreed ~~presumed~~number toof ~~have~~shares ~~adrenocortical~~of ~~insufficiency.~~Assertio’s common stock.

We• ~~maintain~~On aDecember ~~Commercialization~~12, ~~Agreement~~2019, the Company announced it entered into an agreement with ~~Collegium~~Golf ~~Pharmaceutical~~Acquiror LLC, an affiliate to Alvogen, Inc. (~~Collegium~~Alvogen), ~~pursuant~~a toglobal privately held pharmaceutical company, under which weAlvogen ~~granted~~acquired ~~Collegium~~and ~~the~~assumed ~~right~~all toresponsibilities ~~commercialize~~associated with the ~~NUCYNTA~~product Gralise® ~~franchise~~(gabapentin). ofUnder ~~pain~~the ~~products~~terms inof the ~~United~~agreement, ~~States.~~Alvogen ~~Pursuant~~is expected to ~~the~~pay ~~Commercialization~~Assertio ~~Agreement,~~a ~~Collegium~~total ~~assumed~~value ~~all~~of ~~commercialization~~$127.5 ~~responsibilities~~million. ~~for~~This ~~the~~included ~~NUCYNTA~~$75.0 ~~franchise~~million ~~effective~~in cash at closing on January 910, ~~2018~~2020, ~~including~~and ~~sales~~the ~~and~~balance ~~marketing~~payable as 75% of Alvogen’s first $70. We0 ~~receive~~million aof ~~royalty~~Gralise onnet ~~all~~sales ~~NUCYNTA~~after ~~revenues~~the ~~based~~closing. onAlvogen also paid the Company for certain ~~net~~inventories ~~sales~~relating ~~thresholds~~to Gralise.

•

On February 6, 2020, the Company announced it entered into a definitive agreement with Collegium pursuant to which Collegium acquired the NUCYNTAfranchise of products from the Company, and assumed certain contracts, liabilities and obligations of the Company relating to the NUCYNTA products, including those related to manufacturing and supply, post-market commitments and clinical development costs. Under the terms of the agreement, Collegium paid Assertio $375.0 million in cash at closing on February 13, 2020, less royalties paid to the Company in 2020. Collegium also paid the Company for certain inventories relating to the products.


•	On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.


•	On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate principal amount of the outstanding 2021 Notes and 2024 Notes.

As a result of the transformational impact of these transactions, the Company has positioned itself to actively pursue business development, strategic partnerships, and investment opportunities to build and grow for the future.

Table of Contents

The transactions above are described in more detail in “Item 8. Financial Statements and Supplemental Data - Notes to the Consolidated Financial Statements” of this Annual Report on Form 10-K.

Corporate Information

The address of our ~~Internet~~ website is http://www.assertiotx.com. We make available, free of charge through our website or upon written request, our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K and other periodic SEC reports, along with amendments to all of those reports, as soon as reasonably practicable after we file the reports with the SEC.

Assertio was formerly known as Depomed, Inc. and was originally incorporated in California in August 1995. On August 14, 2018 (Effective Time), we reincorporated from California to Delaware and changed our name to Assertio Therapeutics, Inc. In connection with this name change, our common stock began trading under the ticker symbol “ASRT.” The use of the terms “Company,” “we,” “our” and “us” in this filing refers to Depomed any time prior to the Effective Time and to Assertio any time after the Effective Time.

Our Strategy

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

Our Business Operations

As of December 31, ~~2018~~2019, our ~~revenues~~business ~~were~~operations ~~generated~~consisted ~~primarily~~of ~~from~~ the following ~~products.~~:

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Products

Gralise (Gabapentin)

Gralise is our proprietary, once‑daily formulation of gabapentin indicated for management of PHN, a persistent pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. We made Gralise commercially available in October 2011, following its U.S. Food and Drug Administration (FDA) approval in January 2011. The FDA has granted Orphan Drug exclusivity for PHN.

CAMBIA (Diclofenac Potassium for Oral Solution)

CAMBIA is a non‑steroidal anti‑inflammatory drug (NSAID) indicated for the acute treatment of migraine attacks with or without aura in adults 18 years of age or older. We acquired CAMBIA in December 2013 from Nautilus Neurosciences, Inc. (Nautilus). We began shipping and recognizing product sales on CAMBIA in December 2013.

Zipsor (Diclofenac Potassium Liquid‑Filled Capsules)

Zipsor is an NSAID indicated for relief of mild to moderate acute pain in adults. Zipsor uses proprietary ProSorb^® delivery technology to deliver a finely dispersed, rapidly absorbed formulation of diclofenac. We acquired Zipsor in June 2012 from Xanodyne Pharmaceuticals, Inc. (Xanodyne). We began shipping and recognizing product sales on Zipsor in June 2012.

Gralise (Gabapentin)

Gralise is a once‑daily formulation of gabapentin indicated for management of postherpetic neuralgia (PHN), a persistent pain condition caused by nerve damage during a shingles, or herpes zoster, viral infection. We made Gralise commercially available in October 2011, following its U.S. Food and Drug Administration (FDA) approval in January 2011. Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

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

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

In December 2017, we entered into athe Commercialization Agreement with Collegium, which we amended in November 2018. Pursuant to the Commercialization Agreement, we granted Collegium the right to commercialize the NUCYNTA franchise of ~~pain~~ products in the ~~United States~~U. S. Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing., Weand ~~receive~~received aroyalties ~~royalty~~ on all NUCYNTA revenues based on certain net sales thresholds, with a minimum royalty of $132.0 million for the year ended December 31, 2018. Beginning in 2019, we ~~will~~received ~~receive~~ royalties based on certain annual NUCYNTA net sales thresholds for future years. ~~Both~~ weEffective ~~and~~as ~~Collegium~~of ~~may~~February ~~terminate the Commercialization Agreement under certain circumstances; however~~13, ~~Collegium may not terminate the agreement prior to the end of 2021. Additionally~~2020, we ~~retained~~divested ~~certain~~our rights, totitle ~~co-promote~~and ~~NUCYNTA~~interest ~~products,~~in ~~subject~~and to ~~providing~~our ~~advanced~~NUCYNTA ~~notice~~franchise to Collegium. ~~See “Item 8. Financial Statements and Supplementary Data - Note 4. Revenue” for additional information regarding the terms of the Commercialization Agreement.~~

The following table shows sales for each of the above-described products over each of the past three fiscal years.

(Dollars in Millions)
Products	2018	2017	2016
Gralise	$58.1	$77.0	$88.4
CAMBIA	$35.8	$31.6	$31.3
Zipsor	$16.4	$16.7	$27.5
NUCYNTA ER and NUCYNTA
Product Sales (1)	$18.9	$239.5	$281.3
Commercialization Agreement (2)	$155.7	$0	$0
Lazanda (3)	$0.8	$15.0	$26.5

_________________

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(1) NUCYNTA ER and NUCYNTA product sales for 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. See “Item 8. Financial Statements and Supplementary Data - Note 4. Revenue” for additional information.

(2) NUCYNTA ER and NUCYNTA royalties from Collegium reflect royalties earned and inventory sold pursuant to the Commercialization Agreement after January 8, 2018. See “Item 8. Financial Statements and Supplementary Data - Note 4. Revenue” for additional information.

(3) In November 2017, we entered into agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which Slán acquired our rights to Lazanda. Lazanda nasal spray is an intranasal fentanyl drug used to manage breakthrough pain in adults (18 years of age and older) who are already routinely taking other opioid pain medicines around‑the‑clock for cancer pain. We acquired Lazanda in July 2013 from Archimedes Pharma US Inc. and its affiliated companies.

Product Candidates

Long-Acting Cosyntropin. In November 2017, we entered into definitive agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which we acquired Slán’s rights to market the specialty drug long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. In February 2019, notification of acceptance for filing was received from the FDA for our 505(b)(2) NDA for our novel injectable formulation of long-acting cosyntropin. We, together with our partner, West, seek approval for the use of this product as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency.

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

In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW 3718, an Ironwood product candidate under evaluation for refractory GERD. During the second quarter of 2018, we received a $5.0 million milestone payment related to the dosing of the first patient in a Phase 3 trial. We will receive additional contingent milestone payments upon the occurrence of certain development milestones and royalties on net sales of the product, if approved.

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

In October 2013, pursuant to the terms and conditions of a Royalty Purchase and Sale Agreement with PDL (Royalty Purchase Agreement), we sold to PDL our right to receive royalty, milestone and other specified payments arising on and after October 2013 under each of the following license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area: (i) the License and Services Agreement, effective as of March 4, 2011, with Boehringer Ingelheim International GMBH (BI) relating to potential future development milestones and sales of BI’s investigational fixed-dose combinations of drugs and extended-release metformin worldwide; (ii) the License Agreement, effective as of August 5, 2010, with Janssen Pharmaceutica N.V. (Janssen) relating to potential future development milestones and sales of Janssen’s investigational fixed-dose combination of Invokana® (canagliflozin) and extended-release metformin worldwide; (iii) the Non-Exclusive License, Covenant Not to Sue and Right of Reference Agreement, effective as of July 21, 2009, with Merck & Co., Inc. relating to sales of Janumet XR® (sitagliptin and metformin HCL extended-release) worldwide; (iv) the Commercialization Agreement, effective as of August 22, 2011, with Santarus, Inc. relating to sales of Glumetza® (metformin HCL extended-release tablets) in the United States; (v) the Amended License Agreement, effective as of January 9, 2007, with LG Life Sciences Ltd. relating to sales of extended-release metformin in Korea; and (vi) the Amended and Restated License Agreement (Extended Release Metformin Formulations — Canada), dated as of December 13, 2005, with Biovail Laboratories International SRL relating to sales of extended-release metformin in Canada. Under the Royalty Purchase Agreement, PDL was entitled to receive all payments due under such license agreements until PDL received $481 million, after which all net payments received were to be shared evenly between us and PDL. In August 2018, we amended the Royalty Purchase Agreement and sold our remaining interest in such payments to PDL for $20.0 million.

Segment and Customer Information

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

The three large, national wholesale distributors represent the vast majority of our product sales and represented the percentages of product shipments and consolidated revenue for the years ended December 31, 2018, 2017 and 2016 set forth below. Further, as described above, we entered into a Commercialization Agreement with Collegium pursuant to which we granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the United States, effective January

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9,The ~~2018. We~~following ~~receive~~table ashows ~~royalty on all NUCYNTA revenues based on certain net~~ sales ~~thresholds,~~for ~~which~~each ~~royalties~~of ~~represented~~ the ~~following~~above-described ~~percentage~~products ofover ~~consolidated~~each ~~revenue~~of ~~for~~ the ~~years~~past ~~ended~~three ~~December~~fiscal ~~31,~~years ~~2018,~~(in ~~2017 and 2016.~~millions):

	Consolidated Revenue							Accounts Receivable related to product shipments
		Year ended December 31,
	2018		2017			2016		2018		2017		2016
		2019	2018		2017
McKesson Corporation	14	%	36	%		36	%	28	%	41	%	39	%
Gralise		$63.1	$58.1		$77.0
AmerisourceBergen Corporation	13	%	27	%		27	%	28	%	27	%	33	%
CAMBIA		$32.5	$35.8		$31.6
Cardinal Health	11	%	26	%		25	%	32	%	23	%	20	%
Zipsor		$12.5	$16.4		$16.7
Collegium	55	%	—	%		—	%	—	%	—	%	—	%
NUCYNTA ER and NUCYNTA
All others	7	%	11	%		12	%	12	%	9	%	8	%
Product Sales (1)		$0.9	$18.9		$239.5
Total	100	%	100	%		100	%	100	%	100	%	100	%
Commercialization Agreement (2)		$118.6	$155.7		$0
Lazanda (3)		$(0.2)	$0.8		$15.0

(1)

NUCYNTA ER and NUCYNTA product sales reflect our sales between January 1, 2017 and January 8, 2018, prior to the Commercialization Agreement with Collegium. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for additional information. Subsequent to January 8, 2018, we continue to recognize sales reserve estimate adjustments related to sales recognized for NUCYNTA products in prior periods.

(2)

NUCYNTA ER and NUCYNTA royalties from Collegium reflect royalties earned and inventory sold pursuant to the Commercialization Agreement after January 8, 2018. Variable royalty revenue became effective for sales beginning January 1, 2019, as recognition of such royalties are constrained by the sales-based royalty exception related to intellectual property. Other components of net revenue from the Commercialization Agreement include the amortization of revenue from contract liabilities arising from the warrants and prepayments received, amortization of the contract asset, and variable consideration revenue for reimbursement of certain shared costs. See “Item 8. Financial Statements and Supplementary Data - Note 2. Revenue” for additional information.

(3)

In November 2017, we entered into agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which Slán acquired our rights to Lazanda. Lazanda nasal spray is an intranasal fentanyl drug used to manage breakthrough pain in adults (18 years of age and older) who are already routinely taking other opioid pain medicines around‑the‑clock for cancer pain. We acquired Lazanda in July 2013 from Archimedes Pharma US Inc. and its affiliated companies. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda in prior periods.

Collaboration and License Agreements

Nuvo Pharmaceuticals, Inc. (Nuvo) In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now Nuvo Pharmaceuticals, Inc.) granting them the rights to commercially market CAMBIA in Canada. Nuvo independently contracts with manufacturers to produce a specific CAMBIA formulation in Canada. We receive royalties on net sales on a quarterly basis as well as certain one-time contingent milestone payments upon the occurrence of certain events. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee to support the continued collaboration with our partner in Canada following their acquisition and a $0.5 million milestone payment. During the year ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada. We will receive additional one-time contingent milestone payments upon the achievement of scaling twelve-month cumulative sales targets and certain development milestones in the future.

Ironwood Pharmaceuticals, Inc. (Ironwood) In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW 3718, an Ironwood product candidate under evaluation for refractory gastroesophageal reflux disease (GERD). During the second quarter of 2018, we received a $5.0 million milestone payment related to the dosing of the first patient in a Phase 3 trial. We expect to receive additional contingent milestone payments upon the occurrence of certain development milestones and royalties on net sales of the product, if approved.

PDL BioPharma, Inc. (PDL) In October 2013, pursuant to the terms and conditions of a Royalty Purchase and Sale Agreement with PDL (Royalty Purchase Agreement), we sold to PDL our right to receive royalty, milestone and other specified payments arising on and after October 2013 under each of the following license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area: (i) the License and Services Agreement, effective as of March 4, 2011, with Boehringer Ingelheim International GMBH (BI), relating to potential future development milestones and sales of BI’s investigational fixed-dose combinations of drugs and extended-release metformin worldwide; (ii) the License Agreement, effective as of August 5, 2010, with Janssen Pharmaceutica N.V. (Janssen), relating to potential future development milestones and sales of Janssen’s investigational fixed-dose combination of Invokana^® (canagliflozin) and extended-release metformin worldwide; (iii) the Non-Exclusive License, Covenant Not to Sue and Right of Reference Agreement, effective as of July 21, 2009, with Merck & Co., Inc., relating to sales of Janumet XR^® (sitagliptin and metformin HCL extended-release) worldwide; (iv) the Commercialization Agreement, effective as of August 22, 2011, with Santarus, Inc. relating to sales of Glumetza^® (metformin

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HCL extended-release tablets) in the U.S.; (v) the Amended License Agreement, effective as of January 9, 2007, with LG Life Sciences Ltd., relating to sales of extended-release metformin in Korea; and (vi) the Amended and Restated License Agreement (Extended Release Metformin Formulations — Canada), dated as of December 13, 2005, with Biovail Laboratories International SRL, relating to sales of extended-release metformin in Canada. Under the Royalty Purchase Agreement, PDL was entitled to receive all payments due under such license agreements until PDL received $481 million, after which all net payments received were to be shared evenly between us and PDL. In August 2018, we amended the Royalty Purchase Agreement and sold our remaining interest in such payments to PDL for $20.0 million.

Slán Medicinal Holdings Limited In November 2017, we entered into definitive agreements with Slán Medicinal Holdings Limited and certain of its affiliates (Slán) pursuant to which we acquired Slán’s rights to market the specialty drug long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. On February 6, 2020, the Company entered into an amended agreement with Eolas Pharma Teoranta (Eolas), an affiliate of Slán. Pursuant to the amendment, the license granted to the Company for the commercialization of long-acting cosyntropin was terminated. Additionally, the Company may receive up to $10.0 million in future payments based upon commercial sales of long-acting cosyntropin if Eolas successfully obtains regulatory approval for and commercializes the product.

Segment and Customer Information

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

The three large, national wholesale distributors represent the vast majority of our revenues and represented the following percentages of product shipments and consolidated revenue for the years ended December 31, 2019, 2018 and 2017 set forth below. Further, as described above, we entered into the Commercialization Agreement with Collegium pursuant to which we granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S., effective January 9, 2018. We received royalties on all NUCYNTA revenues based on certain net sales thresholds. These royalties represented the following percentage of consolidated revenue for the years ended December 31, 2019, 2018 and 2017.



	Consolidated Revenue						Accounts Receivable related to product shipments
	2019		2018		2017		2019		2018		2017
McKesson Corporation	16	%	14	%	36	%	46	%	28	%	41	%
AmerisourceBergen Corporation	12	%	13	%	27	%	17	%	28	%	27	%
Cardinal Health	10	%	11	%	26	%	25	%	32	%	23	%
Collegium	52	%	55	%	—	%	—	%	—	%	—	%
All others	10	%	7	%	11	%	12	%	12	%	9	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

Marketing and Sales

We have developed capabilities in various aspects relating to the commercialization of our marketed products, including sales, marketing, manufacturing, quality assurance, wholesale distribution, managed market contracting, government price reporting, medical affairs, and compliance, and regulatory affairs. Members of our commercial organization are also engaged in the commercial and marketing assessments of other potential product candidates.

Our neurology sales organization includes approximately 9072 full time ~~sales representatives, approximately half of whom are our~~ employees ~~and~~as ~~the balance~~ of ~~whom~~January ~~are~~31, ~~employees of a contract sales organization~~2020. Our neurology sales force primarily calls on neurologists, pain specialists and primary care physicians, and their affiliated physician assistants and nurse practitioners, throughout most of the ~~United States~~U.S. Our marketing and managed care organization is comprised of professionals who have developed a variety of ~~marketing~~strategies ~~techniques~~ and ~~programs~~tactics to promote our products, including promotional materials, market access programs, industry publications, advertising and other media.

Seasonality

Our product revenues for Gralise, CAMBIA and Zipsor have historically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year. This variation is influenced by both wholesaler buying patterns and the reset of annual limits on deductibles and out-of-pocket costs of many health insurance plans and government programs at the beginning of each calendar year. For additional information, please also refer to “Item 1A, Risk Factors - Our product revenues have historically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year, which may cause our stock price to decline.”

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beginning of each calendar year. For additional information, please also refer to “Item 1A. Risk Factors - Our product revenues have typically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year.”

Manufacturing

Our facility is used for office purposes. No commercial manufacturing takes place at our facility.

We are responsible for the supply and distribution of our marketed products. We have manufacturing and supply agreements with sole commercial suppliers for each of our marketed products, as follows: for Gralise, with Patheon Puerto Rico Inc. (Patheon); for CAMBIA, with MiPharm, S.p.A. (MiPharm); for Zipsor, with Catalent Ontario Limited (Catalent); for NUCYTNA ER, with an affiliate of Janssen Pharma; and for NUCYNTA, with Halo Pharmaceutical, Inc. (~~Halo~~dba Cambrex Whippany). Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen, including related manufacturing and supply agreements. Effective as of February 13, 2020 we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium, including related manufacturing and supply agreements.

We have one qualified supplier for the active pharmaceutical ingredient in each of our marketed products. We have supply and manufacturing agreements with the suppliers of the active pharmaceutical ingredients in each of our marketed products. We also obtain polyethylene oxide, one of the excipients common to Gralise and products under development by our partners. We currently have no long term supply arrangement with respect to polyethylene oxide.

For additional information regarding our manufacturing, please also refer to “Item 1A,. Risk Factors - We depend on one qualified supplier for the active pharmaceutical ingredient in each of our products, and we depend on third parties that are single source suppliers to manufacture our products. IfInsufficient ~~these~~availability ~~suppliers~~of ~~are~~our ~~unable~~products toor ~~manufacture~~the ~~and~~active ~~supply~~pharmaceutical ~~our~~ingredients ~~products,~~and orother ifraw ~~there~~materials isnecessary ~~insufficient~~to ~~availability~~manufacture of our products, or the ~~raw~~inability ~~materials~~of ~~necessary~~our suppliers to manufacture and supply our products, will adversely impact our ~~business~~sales ~~will~~upon ~~suffer~~depletion of the active ingredient and product inventories.”

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Intellectual Property

Our Trademarks

Assertio™, Depomed®, ~~NUCYNTA®, Gralise®,~~ CAMBIA®, Zipsor® and Acuform® are trademarks of Assertio. Gralise® and NUCYNTA® were trademarks of Assertio until we divested our rights to those products and related trademarks to Alvogen and Collegium on January 10, 2020 and February 13, 2020, respectively. All other trademarks and trade names referenced in this Annual Report on Form 10 -K are the property of their respective owners.

Our Patents and Proprietary Rights

The material issued in the U.S. patents we own or have in‑licensed, and the marketed products they cover, are as follows:

Product		U.S. Patent Nos. (Exp. Dates)
NUCYNTA® ER		8,536,130 (September 22, 2028)(1)(2)
		7,994,364 (June 27, 2025)(1)(2)
		RE39593 (August 5, 2022)(1)(2)
NUCYNTA®		7,994,364 (June 27, 2025)(1)
		RE39593 (August 5, 2022)(1)
Gralise®		7,438,927 (February 26, 2024)
		7,731,989 (October 25, 2022)
		8,192,756 (October 25, 2022)
		8,252,332 (October 25, 2022)
		8,333,992 (October 25, 2022)
		6,723,340 (October 25, 2021)
		6,488,962 (June 20, 2020)
Zipsor®		7,662,858 (February 24, 2029)
		7,884,095 (February 24, 2029)
		7,939,518 (February 24, 2029)
		8,110,606 (February 24, 2029)
		8,623,920 (February 24, 2029)
		6,287,594 (January 15, 2019)
		9,561,200 (February 24, 2029)
CAMBIA®		7,759,394 (June 16, 2026) (1)
		8,097,651 (June 16, 2026) (1)
		8,927,604 (June 16, 2026) (1)
		9,827,197 (June 16, 2026)
(1) Subject to six‑month pediatric patent term extension beyond scheduled expiration date.(2) Patent rights are exclusively in‑licensed by us.

Our success will depend in part on our ability to obtain and maintain patent protection for our products and technologies. Our policy is to seek to protect our proprietary rights, by among other methods, filing patent applications in the U.S. and foreign jurisdictions to cover certain aspects of our technology. In addition to those patents noted on the above table, we have one patent application pending in the U.S. Our pending patent application may lack priority over other applications or may not result in the issuance of a patent. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or may not provide us with competitive advantages against competing products. We also rely on trade secrets and proprietary know how, which are difficult to protect. We seek to protect such information, in part, through entering into confidentiality agreements with employees, consultants, collaborative partners and others before such persons or entities have access to our proprietary trade secrets and know how. These confidentiality agreements may not be effective in certain cases. In addition, our trade secrets may otherwise become known or be independently developed by competitors. For further information regarding risks associated with the protection of our intellectual property rights, please

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also refer to “Item 1A, “Risk Factors - We may be unable to protect our intellectual property and may be liable for infringing the intellectual property of others.” For information regarding currently pending litigation related to intellectual property matters, please also refer to “Item 8. Financial Statements and Supplementary Data - Note 12. Commitments and Contingencies.”



Product		U.S. Patent Nos. (Exp. Dates)
NUCYNTA^® ER ⁽¹⁾		8,536,130 (September 22, 2028)⁽²⁾⁽³⁾
		7,994,364 (June 27, 2025)⁽²⁾⁽³⁾
		RE39593 (August 5, 2022)⁽²⁾⁽³⁾
NUCYNTA^{® (1)}		7,994,364 (June 27, 2025)⁽²⁾
		RE39593 (August 5, 2022)⁽²⁾
Gralise^{® (4)}		7,438,927 (February 26, 2024)
		7,731,989 (October 25, 2022)
		8,192,756 (October 25, 2022)
		8,252,332 (October 25, 2022)
		8,333,992 (October 25, 2022)
		6,723,340 (October 25, 2021)
		6,488,962 (June 20, 2020)
Zipsor^®⁽⁵⁾		7,662,858 (February 24, 2029)
		7,884,095 (February 24, 2029)
		7,939,518 (February 24, 2029)
		8,110,606 (February 24, 2029)
		8,623,920 (February 24, 2029)
		6,287,594 (January 15, 2019)
		9,561,200 (February 24, 2029)
CAMBIA^®⁽⁶⁾		7,759,394 (June 16, 2026)⁽²⁾
		8,097,651 (June 16, 2026)⁽²⁾
		8,927,604 (June 16, 2026) ⁽²⁾
		9,827,197 (June 16, 2026)

(1) Effective as of February 13, 2020, we divested the NUCYNTA patents to Collegium. (2) Subject to six‑month pediatric patent term extension beyond scheduled expiration date. (3) Patent rights were exclusively in‑licensed by us until transferred to Collegium on February 13, 2020. (4) Effective as of January 10, 2020, we divested the Gralise patents to Alvogen. (5) Certain parties who have entered into settlement agreements with us will be able to market generic versions of Zipsor starting in 2022. (6) Certain parties who have entered into settlement agreements with us will be able to market generic versions of CAMBIA starting in 2023.

Competition

General. We believe that we compete favorably in our markets on the basis of the safety and efficacy of our products. However, competition in pharmaceutical products is intense, and we expect competition to increase through both branded and generic competitors. There may be other companies developing products competitive with ours of which we are unaware. Many of our principal competitors have greater financial, sales, marketing, personnel and research and development resources than we do. Competing products developed in the future may prove superior to our products, either generally or in particular market segments. These developments could make our products noncompetitive or obsolete.

Gralise. Gabapentin is currently sold by Pfizer Inc. (Pfizer) as Neurontin® and by several generic manufacturers for adjunctive therapy for partial onset seizures and for the management of PHN (postherpetic neuralgia). In addition, Pfizer’s product Lyrica® (pregabalin) has been approved for marketing in the United States for the management of PHN, neuropathic pain associated with DPN (diabetic peripheral neuropathy), neuropathic pain associated with spinal cord injury, fibromyalgia, and adjunctive therapy in partial onset seizures. In January 2018, Pfizer began to sell Lyrica® CR a controlled release formulation of Lyrica® for neuropathic pain associated with DPN and for PHN. Gralise competes against these products and other neuropathic pain treatments, such as anti-depressants, anti-convulsants, local anesthetics used as regional nerve blockers, anti-arrhythmics and opioids. Arbor Pharmaceutical, LLC.’s Horizant™ (gabapentin enacarbil extended-release tablets) product, a prodrug of gabapentin, is also marketed for the management of PHN in the U.S. as well as for Restless Leg Syndrome.9

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

~~Zipsor. Diclofenac,~~Many ~~the~~of ~~active~~our ~~pharmaceutical~~principal ~~ingredient~~competitors inmay ~~Zipsor,~~have isgreater afinancial, ~~NSAID~~sales, ~~that~~marketing, ispersonnel ~~approved~~and inresearch ~~the~~and ~~United~~development ~~States~~resources ~~for~~than ~~relief~~we ~~of mild to moderate acute pain~~do. ~~Both~~Competing ~~branded~~products ~~and~~developed ~~generic versions of diclofenac are marketed~~ in the ~~United~~future ~~States.~~may ~~Zipsor~~prove ~~competes~~superior ~~against other drugs that are widely used~~ to ~~treat~~our ~~mild to moderate acute pain. In addition~~products, aeither ~~number~~generally ofor ~~other companies are developing NSAIDs~~ in aparticular ~~variety~~market ~~of dosage forms for the treatment of mild to moderate pain and related indications~~segments. ~~Other~~These ~~drugs~~developments ~~are~~could inmake ~~clinical~~our ~~development~~products tononcompetitive ~~treat~~or ~~acute pain~~obsolete.

~~NUCYNTA~~Gralise Gabapentin ERis ~~(tapentadol~~currently ~~extended~~sold ~~release~~by ~~tablets)~~Pfizer Inc. ~~NUCYNTA~~ ER(Pfizer) ~~competes~~as ~~against~~Neurontin® ~~other~~and ~~long‑acting~~by ~~opioid~~several ~~medications~~generic manufacturers for adjunctive therapy for partial onset seizures and for the management of PHN. ~~Those~~In ~~include~~addition, ~~among~~Pfizer’s ~~others:~~product ~~OxyContin~~Lyrica® (~~oxycodone~~pregabalin) ~~hydrochloride~~has ~~extended‑release~~been ~~tablets);~~approved ~~Butrans®~~for ~~(buprenorphine);~~marketing ~~Belbuca™~~in ~~(buprenorphine~~the ~~buccal~~U.S. ~~film);~~for ~~Hysingla®~~the ERmanagement ~~(hydrocodone~~of ~~bitartrate);~~PHN, ~~Xtampza®~~neuropathic ERpain ~~(oxycodone);~~associated ~~Zohydro®~~with ERDPN (~~hydrocodone~~diabetic ~~bitartrate~~peripheral neuropathy);, ~~Embeda®~~neuropathic ~~(morphine~~pain ~~sulfate~~associated with spinal cord injury, fibromyalgia, and ~~naltrexone~~adjunctive ~~hcl);~~therapy ~~Arymo~~in partial onset seizures. In January 2018, Pfizer began to sell Lyrica® ERCR, ~~(morphine~~a ~~sulfate);~~controlled ~~MorphaBond™~~release ERformulation ~~(morphine~~of ~~sulfate);~~Lyrica ~~and~~for ~~numerous~~neuropathic ~~generically~~pain ~~available~~associated ~~long‑acting~~with ~~opioids.~~DPN ~~New~~and ~~products~~for ~~continue~~PHN. toGralise becompetes ~~developed~~against these products and ~~approved~~other neuropathic pain treatments, such as ~~Pfizer’s~~anti-depressants, ~~Troxyca~~anti-convulsants, ~~Teva’s~~local ~~Vantrela~~anesthetics ~~and~~used ~~Daiichi~~as regional nerve blockers, anti-~~Sankyo~~arrhythmics and opioids. Arbor Pharmaceutical, LLC’s ~~RoxyBond~~Horizant™ (gabapentin enacarbil extended-release tablets) product, a prodrug of gabapentin, is also marketed for the management of PHN in the U.S. as well as for Restless Leg Syndrome. Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

~~NUCYNTA~~CAMBIA Diclofenac ~~(tapentadol)~~potassium, the active pharmaceutical ingredient in CAMBIA, is an NSAID approved in the U. ~~NUCYNTA~~S. ~~(tapentadol)~~for the acute treatment of migraine in adults. CAMBIA competes ~~primarily~~with ~~against~~a ~~other~~number ~~short‑acting~~of ~~opioids~~triptans which are used to treat acute migraine and certain other headaches. ~~There~~Currently, seven triptans are ~~numerous~~available ~~such~~generically ~~medicines~~and sold in the U.S. (almotriptan, ~~including~~eletriptan, ~~among~~frovatriptan, ~~others:~~naratriptan, ~~Oxaydo®~~rizatriptan, ~~(oxycodone~~sumatriptan ~~hcl~~and zolmitriptan);. ~~generic~~Branded ~~oxycodone~~competitors ~~hcl;~~include ~~generic~~Zomig® ~~oxycodone~~Nasal ~~acetaminophen;~~Spray, ~~generic~~Onzetra®, ~~oxymorphone;~~Xsail®, ~~generic~~Sumavel®, ~~hydrocodone~~Zembrace® SymTouch® ~~acetaminophen;~~and ~~generic~~Treximet®, ~~hydromorphone;~~which ~~generic~~is ~~morphine;~~a ~~generic~~fixed ~~tramadol~~dose ~~hcl~~combination ~~and~~product ~~generic~~containing ~~tramadol~~sumatriptan ~~acetaminophen~~and naproxen. ~~New~~There ~~short~~are other products prescribed for or under development for the treatment or prevention of migraines that are now or may become competitive with CAMBIA, including calcitonin gene-~~acting~~related ~~opioids~~peptide ~~continue~~(CGRP) toinhibitor beproducts ~~developed~~(CGRP brands include Aimovig, Ajovy and ~~approved~~Emgality).

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

NUCYNTA ER (tapentadol extended release tablets) NUCYNTA ER competes against other long‑acting opioid medications. Those include, among others: OxyContin^® (oxycodone hydrochloride extended‑release tablets); Butrans^® (buprenorphine); Belbuca^™ (buprenorphine buccal film); Hysingla^® ER (hydrocodone bitartrate); Xtampza^® ER (oxycodone); Zohydro^® ER (hydrocodone bitartrate); Embeda^® (morphine sulfate and naltrexone hcl); Arymo^® ER (morphine sulfate); MorphaBond^™ ER (morphine sulfate); and numerous generically available long‑acting opioids. New products continue to be developed and approved, such as Pfizer’s Troxyca, Teva’s Vantrela and Daiichi-Sankyo’s RoxyBond. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

NUCYNTA (tapentadol) NUCYNTA (tapentadol) competes primarily against other short‑acting opioids. There are numerous such medicines, including, among others: Oxaydo^® (oxycodone hydrochloride (hcl)); generic oxycodone hcl; generic oxycodone acetaminophen; generic oxymorphone; generic hydrocodone acetaminophen; generic hydromorphone; generic morphine; generic tramadol hcl and generic tramadol acetaminophen. New short-acting opioids continue to be developed and approved. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

Government Regulation

~~Product~~In ~~Development~~the U.S., pharmaceuticals are subject to regulation by federal and state authorities, including the FDA. The Federal Food, Drug and Cosmetic Act (FDCA) governs the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, approval, and marketing of pharmaceutical products. Failure to comply with applicable regulatory requirements can, among other things, result in delays, injunctions, product seizure or detention, product recalls, total or partial suspension of production and civil suits. The FDA may revoke approved applications or deny approval of pending new drug applications, premarket approval applications or supplements to approved applications.

~~Numerous~~Preclinical ~~governmental authorities in the U.S.~~ and ~~other~~Clinical countries regulate our research and development activities and those of our collaborative partners. Governmental approval is required of all potential pharmaceutical products prior to the commercial use of those products. The regulatory process takes several years and requires substantial funds. Studies

8Governmental approval is required of all potential pharmaceutical products prior to the commercial use of those products. The regulatory process takes several years and requires substantial funds.

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In the ~~U.S.,~~work related to the ~~FDA~~development ~~rigorously~~or ~~regulates~~marketing of new pharmaceutical products., Ifthe aFDA ~~company~~may ~~fails~~require topre-clinical ~~comply~~tests ~~with~~that ~~applicable~~include ~~requirements,~~laboratory ~~the~~evaluations ~~FDA~~of orproduct ~~the~~chemistry, ~~courts~~toxicity ~~may~~and ~~impose~~formulation, ~~sanctions.~~as ~~These~~well ~~sanctions~~as ~~may~~animal ~~include~~studies ~~civil~~to ~~penalties,~~assess ~~criminal~~potential ~~prosecution~~efficacy and safety of the ~~company~~product. orIf ~~its~~preclinical ~~officers~~testing ~~and~~is ~~employees~~required, ~~injunctions,~~we ~~product~~must ~~seizure~~submit orthe ~~detention~~results of the studies, ~~product~~together ~~recalls~~with manufacturing information, analytical data and ~~total~~any oravailable ~~partial~~clinical ~~suspension~~data ofor ~~production.~~literature, ~~The~~among ~~FDA~~other ~~may~~things, ~~withdraw~~to ~~approved~~the ~~applications~~FDA oras ~~refuse~~part toof ~~approve~~an ~~pending~~Investigational ~~new~~New ~~drug~~Drug ~~applications~~Application (IND), ~~premarket~~which ~~approval~~must ~~applications,~~become oreffective ~~supplements~~before tobeginning ~~approved~~clinical ~~applications~~testing in humans.

WeSome ~~may~~of bethe ~~required~~products towe ~~conduct~~have ~~preclinical~~developed ~~testing~~have onbeen ~~laboratory~~submitted ~~animals~~for approval under Section 505(b)(2) of ~~new~~the ~~pharmaceutical~~FDCA, ~~products~~which ~~prior~~was toenacted ~~commencement~~as part of ~~clinical~~the ~~studies~~Drug ~~involving~~Price ~~human~~Competition ~~beings.~~and ~~These~~Patent ~~studies~~Term ~~evaluate~~Restoration ~~the~~Act ~~potential~~of ~~efficacy~~1984, ~~and~~otherwise ~~safety~~known ofas the ~~product~~Hatch‑Waxman Act. IfSection ~~preclinical~~505(b)(2) ~~testing~~permits isthe ~~required,~~submission weof ~~must~~a ~~submit~~new ~~the~~drug ~~results~~application (NDA) where at least some of the ~~studies~~information torequired ~~the~~for ~~FDA~~approval ascomes ~~part~~from ofstudies annot ~~Investigational~~conducted ~~New~~by ~~Drug~~or ~~Application,~~for the applicant and for which ~~must~~the ~~become~~applicant ~~effective~~has ~~before~~not ~~beginning~~obtained ~~clinical~~a ~~testing~~right inof ~~humans~~reference.

~~Some~~Clinical oftrials involve the ~~products~~administration weof ~~have~~the ~~developed~~investigational ~~have~~new ~~been~~drug ~~submitted~~to ~~for~~human ~~approval~~subjects under ~~Section~~the ~~505(b)(2)~~supervision of ~~the~~qualified ~~Federal~~investigators ~~Food,~~in ~~Drug~~accordance ~~and~~with ~~Cosmetics~~Current ~~Act~~Good Clinical Practice (~~FDCA~~cGCP), which ~~was~~includes ~~enacted~~the asrequirement ~~part~~that ofall ~~the~~research ~~Drug~~subjects ~~Price~~provide ~~Competition~~their ~~and~~informed ~~Patent~~consent ~~Term~~in ~~Restoration~~writing ~~Act~~for oftheir ~~1984,~~participation ~~otherwise~~in ~~known~~any asclinical ~~the~~trial. ~~Hatch‑Waxman~~Clinical ~~Act.~~trials ~~Section~~are ~~505(b)(2)~~conducted ~~permits~~under protocols detailing the ~~submission~~objectives of anthe ~~NDA~~trial, ~~where~~the atparameters ~~least~~to ~~some~~be ofused ~~the~~in ~~information~~monitoring ~~required~~safety ~~for~~and ~~approval~~the ~~comes~~effectiveness ~~from~~criteria ~~studies~~to ~~not~~be ~~conducted~~evaluated. byEach orprotocol ~~for~~intended ~~the~~to ~~applicant~~study ~~and~~an ~~for~~investigational ~~which~~new ~~the~~drug ~~applicant~~formulation ~~has~~must ~~not~~be ~~obtained~~submitted ato ~~right~~the ofFDA ~~reference.~~as ~~For~~part ~~instance,~~of the ~~NDA~~IND. ~~for~~Additionally, ~~Gralise~~an ~~relies~~independent onInstitutional ~~the~~Review ~~FDA’s~~Board ~~prior~~(IRB) ~~approval~~at ofeach ~~Neurontin®~~institution ~~(gabapentin),~~participating in the ~~immediate~~clinical ~~release~~trial ~~formulation~~must ofreview ~~gabapentin~~and ~~initially~~approve ~~approved~~the byplan ~~the~~for ~~FDA~~any clinical trial before it commences.

Typically, human clinical evaluation involves a time‑consuming and costly three‑phase process:


•	In Phase 1, we conduct clinical trials with a small number of subjects to determine a drug’s early safety profile and its pharmacokinetic pattern.


•	In Phase 2, we conduct limited clinical trials with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and further evidence of safety.


•	In Phase 3, we conduct large‑scale, multi‑center, comparative trials with patients afflicted with a target disease in order to provide enough data to statistically evaluate the efficacy and safety of the product candidate, as required by the FDA.

The FDA closely monitors the progress of each phase of clinical testing. The FDA may, at its discretion, re‑evaluate, alter, suspend or terminate testing based upon the data accumulated ~~to that point~~ and the FDA’s assessment of the risk/benefit ratio to patients. The FDA may ~~also~~ require additional clinical trials after approvals, ~~which are~~ known as Phase 4 trials.

~~The~~Marketing results of preclinical and clinical testing are submitted to the FDA in the form of an NDA, for approval prior to commercialization. An NDA requires that our products are compliant with current good manufacturing practices (cGMP). Failure to achieve or maintain cGMP standards for our products would adversely impact their marketability.Approval

InFDA ~~responding~~approval toof an NDA is required before a product may be marketed in the U.S. Assuming successful completion of the required clinical testing, the ~~FDA~~results ~~may~~of ~~grant~~the ~~marketing~~preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA requesting approval to market the product for one or more indications. If the FDA determines that the application is not sufficiently complete to permit substantive review, it may request additional information orand ~~deny~~decline to accept the application for filing until the information is provided. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. During the review process, the FDA also reviews the drug’s product labeling to ensure that appropriate information is communicated to healthcare professionals and consumers.

~~Foreign~~As ~~regulatory~~part ~~approval~~ of aan ~~product~~application, ~~must~~the ~~also~~FDA bemay ~~obtained~~require ~~prior~~submission toof ~~marketing~~a ~~the~~Risk ~~product~~Evaluation ~~internationally.~~and ~~Foreign~~Mitigation ~~approval~~Strategy ~~procedures~~(REMS) ~~vary~~plan ~~from country~~ to ~~country.~~mitigate ~~The~~any ~~time~~identified ~~required for approval may delay~~ or ~~prevent~~suspected ~~marketing~~serious ~~in certain countries~~risks. InThe ~~certain~~REMS ~~instances~~plan wecould orinclude ~~our~~medication ~~collaborative~~guides, ~~partners~~physician ~~may~~communication ~~seek~~plans, ~~approval~~assessment toplans ~~market~~ and ~~sell~~elements ~~certain~~to ~~products~~assure ~~outside~~safe ofuse, ~~the~~such ~~United~~as ~~States~~restricted ~~before~~distribution ~~submitting~~methods, anpatient ~~application~~registries ~~for~~or ~~United~~other ~~States~~risk ~~approval~~minimization ~~to the FDA~~tools. ~~The~~In ~~clinical~~addition, ~~testing~~under ~~requirements and~~ the ~~time~~Pediatric ~~required~~Research toEquity ~~obtain~~Act ~~foreign~~of ~~regulatory~~2003 ~~approvals~~(PREA), ~~may~~certain ~~differ~~NDAs ~~from~~or ~~that~~supplements ~~required~~to ~~for~~an ~~FDA~~NDA ~~approval.~~must ~~Although~~contain ~~there~~adequate isdata ~~now~~to aassess ~~centralized~~the ~~European~~safety ~~Union~~and ~~(EU)~~effectiveness ~~approval~~of ~~mechanism~~the indrug ~~place,~~for ~~each~~the EUclaimed ~~country~~indications ~~may~~in ~~nonetheless~~all ~~impose~~relevant ~~its~~pediatric ~~own~~subpopulations, ~~procedures~~ and ~~requirements.~~to ~~Many~~support ofdosing ~~these procedures~~ and ~~requirements~~administration ~~are~~for ~~time‑consuming~~each ~~and~~pediatric ~~expensive.~~subpopulation ~~Some~~for EUwhich ~~countries~~the ~~require~~product ~~price~~is ~~approval~~safe asand ~~part of the regulatory process~~effective. ~~These~~The ~~constraints~~FDA ~~can~~may ~~cause~~grant ~~substantial~~deferrals ~~delays~~for insubmission ~~obtaining~~of ~~required~~some ~~approval~~or ~~from~~all ~~both~~pediatric ~~the~~data ~~FDA~~until ~~and~~after ~~foreign~~approval ~~regulatory~~of ~~authorities after~~ the ~~relevant~~product ~~applications~~for ~~are~~use ~~filed, and approval~~ in ~~any~~adults, ~~single~~or ~~country~~partial ~~may~~or ~~not~~full ~~meaningfully~~waivers ~~indicate~~from ~~that~~the ~~another~~pediatric ~~country~~data ~~will approve the product~~requirements.

~~Reimbursement~~Before an NDA is approved, the FDA generally inspects one or more clinical sites and facilities at which the drug is manufactured to ensure they are in compliance with the FDA’s cGCPs and Current Good Manufacturing Practices (cGMP),

Sales of pharmaceutical products in the U.S. depend in significant part on the extent of coverage and reimbursement from government programs, including Medicare and Medicaid, as well as other third party payers. Third party payers are undertaking significant efforts to control the cost of pharmaceutical products, including by implementing cost containment measures to control, restrict access to, or influence the purchase of drugs, and other health care products and services.11

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~~Government programs may regulate reimbursement, pricing, and coverage of products in order to control costs or to affect levels of use of certain products~~respectively. ~~Private~~If ~~health~~the ~~insurance~~FDA ~~plans~~determines ~~may~~the ~~exclude or restrict coverage of some products~~application, ~~such~~data asor bymanufacturing ~~using~~facilities ~~payer formularies under which only selected drugs~~ are ~~covered~~not acceptable, ~~variable~~the ~~co‑payments~~FDA ~~that~~may ~~make~~note ~~drugs~~the ~~that~~deficiencies ~~are~~in ~~not preferred by~~ the ~~payer~~submission ~~more expensive for patients,~~ and byrequest ~~employing~~additional ~~utilization~~testing ~~management controls, such as requirements for prior authorization~~ or ~~prior failure on another type of treatment~~information.

After evaluating the NDA, including all related information and clinical and manufacturing inspection reports, the FDA may issue an approval letter, or, in some cases, a complete response letter (CRL). A CRL generally contains a statement of specific conditions that must be met in order to obtain final approval of the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

The testing and approval process for an NDA requires substantial time, effort and financial resources. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval of an NDA on a timely basis, or at all.

If approved, the FDA may still limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-marketing or Phase 4 clinical studies be conducted, require surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The results of post-marketing studies may cause the FDA to prevent or limit further marketing of a product. After approval, certain changes to the approved product, such as manufacturing changes, new labeling claim and new indications, are subject to additional requirements and FDA review and approval.

Foreign regulatory approval of a product must also be obtained prior to marketing a product internationally. The clinical testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for FDA approval and the time required for approval may delay or prevent marketing in certain countries.

Manufacturing Requirements

We, our suppliers, contract manufacturers and other entities involved in the manufacturing and distribution of approved drugs are required to comply with certain post-approval requirements and are subject to periodic unannounced inspections by the FDA and state agencies to assess compliance with cGMP requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Failure to achieve or maintain cGMP standards for our products would adversely impact their marketability.

We use third-party manufacturers to produce our products in clinical and commercial quantities, and we cannot be certain that future FDA inspections will not identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. Additionally, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

Reimbursement

Sales of pharmaceutical products in the U.S. depend in significant part on the extent of coverage and reimbursement from government programs, including Medicare and Medicaid, as well as other third-party payers. Third-party payers are undertaking significant efforts to control the cost of pharmaceutical products, including by implementing cost containment measures to control, restrict access to or influence the purchase of drugs and other health care products and services.

Government programs may regulate reimbursement, pricing, and coverage of products in order to control costs or to affect levels of use of certain products. Private health insurance plans may exclude or restrict coverage of some products, such as by using payer formularies under which only selected drugs are covered, variable co‑payments that make drugs that are not preferred by the payer more expensive for patients, and utilization management controls, such as requirements for prior authorization or prior failure on another type of treatment.

Fraud and Abuse

Pharmaceutical companies that participate in federal healthcare programs are subject to various U.S. federal and state laws pertaining to healthcare “fraud and abuse,” including anti‑kickback and false claims laws. Violations of U.S. federal and state fraud and abuse laws may be punishable by criminal or civil sanctions, including fines, civil monetary penalties and exclusion from federal healthcare programs (including Medicare and Medicaid).

Federal statutes that apply to us include the federal Anti‑Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration in exchange for or to generate business, including the purchase or prescription of a drug, that is reimbursable by a federal healthcare program such as Medicare and Medicaid, and the Federal False Claims Act (FCA), which generally prohibits knowingly and willingly presenting, or causing to be presented, for payment to the federal government any false, fraudulent or medically unnecessary claims for reimbursed drugs or services. Government enforcement agencies and private whistleblowers have asserted liability under the FCA for claims submitted involving inadequate care, kickbacks, improper promotion of off‑label uses and misreporting of drug prices to federal agencies.12

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Federal statutes that apply to us include the federal Anti‑Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration in exchange for or to generate business, including the purchase or prescription of a drug, that is reimbursable by a federal healthcare program such as Medicare and Medicaid, and the Federal False Claims Act (FCA), which generally prohibits knowingly and willingly presenting, or causing to be presented, for payment to the federal government any false, fraudulent or medically unnecessary claims for reimbursed drugs or services. Government enforcement agencies and private whistleblowers have asserted liability under the FCA for claims submitted involving inadequate care, kickbacks, improper promotion of off‑label uses and misreporting of drug prices to federal agencies.

Similar state laws and regulations, such as state anti‑kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non‑governmental payers, including private insurers. These state laws may be broader in scope than their federal analogues, such as state false claims laws that apply where a claim is submitted to any third‑party payer, regardless of whether the payer is a private health insurer or a government healthcare program, and state laws that require pharmaceutical companies to certify compliance with the pharmaceutical industry’s voluntary compliance guidelines.

Federal and state authorities have increased enforcement of fraud and abuse laws within the pharmaceutical industry, and private individuals have been active in alleging violations of the law and bringing suits on behalf of the government under the FCA and under state and local laws. These laws are broad in scope and there may not be regulations, guidance, or court decisions that definitively interpret these laws and apply them to particular industry practices. In addition, these laws and their interpretations are subject to change.

Prescription Limitations

Many states, including the Commonwealths of Massachusetts and Virginia and the States of New York, Ohio, Arizona, Maine, New Hampshire, Vermont, Rode Island, Colorado, Wisconsin, Alabama, South Carolina, Washington and New Jersey, have either recently enacted, intend to enact, or have pending legislation or regulations designed to, among other things, limit the duration and quantity of initial prescriptions of immediate release form of opiates (such as NUCYNTA), mandate the use by prescribers of prescription drug databases and mandate prescriber education. These and other state and local laws applicable to the pharmaceutical industry may affect our business and operations as well as those of our commercialization and development partners.

Controlled Substances

Tapentadol (Federal and State). The U.S. Drug Enforcement Administration (DEA) is the federal agency responsible for domestic enforcement of the Controlled Substances Act of 1970 (CSA). The DEA regulates controlled substances as Schedule I, II, III, IV orand V substances. Schedule I substances by definition have high potential for abuse, no currently accepted medical use in the ~~United~~U.S ~~States~~ and lack accepted safety for use under medical supervision, and may not be marketed or sold in the ~~United States~~U.S. Except for research and industrial purposes, a pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Tapentadol, the active ingredient in NUCYNTA and NUCYNTA ER, is listed by the DEA as a Schedule II substance under the CSA. Consequently, its manufacture, shipment, storage, sale and use are subject to a high degree of regulation.

Registration with the DEA is required for any facility that manufactures, distributes, dispenses, imports or exports a controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized to be handled under that registration.

10The availability and production of all Schedule II substances, including tapentadol, is limited by the DEA through a quota system that includes a national aggregate quota, production quotas for individual manufacturers and procurement quotas that authorize the procurement of specific quantities of Schedule II controlled substances for use in drug product manufacturing. The DEA annually establishes an aggregate quota for total tapentadol production in the U.S. based on the DEA’s estimate of the quantity needed to meet commercial and scientific need. The aggregate quota of tapentadol that the DEA allows to be produced in the U.S. is allocated among applicable individual drug manufacturers, which must submit applications at least annually to the DEA for individual production quotas. In turn, the manufacturers of NUCYNTA and NUCYNTA ER, which are third-party contract manufacturers, have to obtain a procurement quota to source tapentadol for the production of NUCYNTA and NUCYNTA ER. The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas for these activities.

The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. The DEA may also require drug manufactures to submit applications for individual production quotas on a rolling basis.

Individual states also regulate controlled substances, and we, as well as our third-party active pharmaceutical ingredient suppliers and manufacturers, are subject to such regulation by several states with respect to the manufacture and distribution of these products. Effective as of February 13, 2020, we divested our rights, title and interest in and to our NUCYNTA franchise to Collegium.

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~~example~~Gabapentin (State). There has been recent regulatory attention focused on gabapentin as a result of abuse potential. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, ~~separate~~as ~~registrations~~a ~~are~~result ~~needed~~of ~~for~~the ~~import~~perceived ~~and~~risks ~~manufacturing~~relating to opioid abuse, several states (Alabama, Indiana, Kentucky, Michigan, North Dakota, Tennessee, Virginia and ~~each~~West ~~registration~~Virginia) ~~will~~have ~~specify~~scheduled ~~which~~gabapentin ~~schedules~~as ofa ~~controlled~~Schedule ~~substances~~V substance. As a result, we, as well as our third-party active pharmaceutical ingredient suppliers and manufacturers, are ~~authorized~~subject to beregulation ~~handled~~by ~~under~~these ~~that~~states ~~registration~~with respect to the manufacture and distribution of Gralise (gabapentin). Effective as of January 10, 2020, we divested our rights, title and interest in and to Gralise to Alvogen.

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

~~The~~Many ~~DEA~~states, ~~requires~~including ~~substantial~~the ~~evidence~~Commonwealths of Massachusetts, and ~~documentation~~Virginia ofand ~~expected~~the ~~legitimate~~States ~~medical~~of ~~and~~New ~~scientific~~York, ~~needs~~Ohio, ~~before~~Arizona, ~~assigning~~Maine, ~~quotas~~New ~~for~~Hampshire, ~~these~~Vermont, ~~activities.~~Rhode ~~The~~Island, ~~DEA~~Colorado, ~~may~~Wisconsin, ~~adjust~~Alabama, ~~aggregate~~South ~~production~~Carolina, ~~quotas~~Washington and ~~individual~~New ~~production~~Jersey, ~~and~~have ~~procurement~~either ~~quotas~~recently ~~from~~enacted, ~~time~~intend to ~~time~~enact ~~during~~or ~~the~~have ~~year~~pending legislation or regulations designed to, ~~although~~among other things, limit the ~~DEA~~duration ~~has~~and ~~substantial~~quantity ~~discretion~~of ininitial ~~whether~~prescriptions orof ~~not~~the toimmediate-release ~~make~~form of opiates (such ~~adjustments.~~as ~~The~~NUCYNTA), ~~DEA~~mandate ~~may~~the ~~also~~use ~~require~~by prescribers of prescription drug ~~manufactures~~databases and mandate prescriber education. These and other state and local laws applicable to ~~submit~~the ~~applications~~pharmaceutical ~~for~~industry ~~individual~~may ~~production~~affect ~~quota~~our onbusiness aand ~~rolling~~operations ~~basis~~as well as those of our commercialization and development partners.

Individual states also regulate controlled substances, and we, as well as our third party active pharmaceutical ingredient suppliers and manufacturers, are subject to such regulation by several states with respect to the manufacture and distribution of these products.

Gabapentin (State). There has been recent regulatory attention focused on gabapentin as a result of a perceived risk of the compound being used as a potentiator for opioid abuse. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of the perceived risks relating to opioid abuse, several states (Tennessee, West Virginia, Kentucky and Michigan) have scheduled gabapentin as a Schedule V substance. As a result, we, as well as our third party active pharmaceutical ingredient suppliers and manufacturers, are subject to regulation by these states with respect to the manufacture and distribution of Gralise (gabapentin).

Other U.S. Healthcare Laws

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA), contains provisions that have impacted or could potentially impact our business, including (a) an increase in the minimum Medicaid rebate to states participating in the Medicaid program on branded prescription drugs; (b) the extension of the Medicaid rebate to managed care organizations that dispense drugs to Medicaid beneficiaries; and (c) the expansion of the 340B Public Health Service Act drug pricing program (340B Program), which provides outpatient drugs at reduced rates, to include certain children’s hospitals, free standing cancer hospitals, critical access hospitals and rural referral centers.

Additionally, the federal Physician Payments Sunshine Act (the Sunshine Act) provisions, enacted in 2010 as part of the ACA, require pharmaceutical manufacturers, among others, to disclose annually to the federal government (for re‑disclosure to the public) certain payments made to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also require disclosure of pharmaceutical pricing information and marketing expenditures and impose penalties for failures to disclose. Many of these laws and regulations contain ambiguous requirements. As a result of the ambiguity in certain of these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations.

Our operations and business are subject to a number of other laws and regulations, including those relating to the workplace, privacy, laboratory practices and the purchase, storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances as well as controlled substances. In addition, state laws may also govern the privacy and security of health information in some circumstances and may contain different or broader privacy protections than the federal provisions.

For additional information and risks regarding the above -described government regulations, please also refer to “Item 1A,. Risk Factors.”

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Employees

AsWe ofhave ~~December~~approximately ~~31,~~125 ~~2018, we had 116~~ full‑time employees as of January 31, 2020. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our retained employees are good.

The Company recognizes that our industry is specialized and dynamic, and a significant aspect of our success is our continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent. There is fierce competition for highly skilled talent, and we offer a robust set of benefits, career-enhancing learning experiences and initiatives aligned with our mission, vision, and values. We offer competitive compensation for our employees and strongly embrace pay for performance.

Our Employee Handbook and Code of Business Conduct and Ethics clearly outlines our unwavering commitment to diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable,

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respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We are also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.

ITEM 1A. RISK FACTORS

In addition to other information in this report, please consider the following ~~factors~~discussion ~~should~~of befactors ~~considered~~that ~~carefully~~makes ~~in evaluating~~ an investment in our securities risky. IfThe ~~any of the~~ risks or uncertainties described in this Form 10‑K ~~actually~~can ~~occurs,~~materially and adversely affect our business, results of operations or financial condition ~~would be materially and adversely affected~~. The risks and uncertainties described below have been grouped under general risk categories, one or more of which categories may be applicable to the risk ~~factor~~factors described. The risks and uncertainties described in this Form 10‑K are not the only ones facing us. Additional risks and uncertainties of which we are unaware or that we currently deem immaterial may also become important factors that ~~may~~can harm our business, results of operations and financial condition.

Risks Related to Commercial, Regulatory and Other Business Matters

WeOur ~~rely~~success onis ~~Collegium~~dependent ~~Pharmaceutical~~on ~~Inc.~~our toexecutive ~~commercialize~~management ~~NUCYNTA~~team’s ~~and~~ability ~~NUCYNTA ER and their failure~~ to successfully ~~commercialize~~pursue ~~these~~business ~~products~~development, ~~could~~strategic ~~have~~partnerships aand ~~material~~investment ~~adverse~~opportunities ~~effect~~to onbuild ~~our business, financial condition~~ and ~~results~~grow offor ~~operations~~the future.

In ~~December~~ 2017, wethe ~~entered~~Company announced that it was in the process of transforming into a ~~commercialization~~leading ~~agreement~~diversified, specialty pharmaceutical company with ~~Collegium~~a ~~pursuant~~goal toof ~~which~~rapidly ~~Collegium~~de-leveraging ~~assumed~~its balance sheet, ~~effective~~growing asits ofcore ~~January~~business 9,and ~~2018,~~opportunistically ~~responsibility~~building for the ~~sales~~future ~~and~~via ~~marketing~~business ofdevelopment. ~~NUCYNTA~~Since ~~and~~then, ~~NUCYNTA~~we ~~ER. Collegium~~have ~~will~~completed ~~pay~~a usnumber ~~royalties~~of ~~based~~transactions onto ~~net~~advance ~~sales~~toward ofachieving ~~NUCYNTA~~our ~~and~~stated ~~NUCYNTA~~goals, ~~ER.~~including ~~Although~~the weentry ~~have~~into ~~retained~~a ~~certain~~Commercialization ~~rights~~Agreement towith ~~promote~~Collegium ~~NUCYNTA~~for ~~and~~our NUCYNTA ERfranchise, the divestiture of Gralise to ~~physicians~~Alvogen, ~~that~~the ~~Collegium~~divestiture ~~does~~of ~~not~~our ~~call~~remaining onrights in the NUCYNTA franchise to Collegium, wethe dorepayment ~~not~~in ~~have~~full ~~any~~of ~~immediate~~our ~~plans~~Senior toNotes ~~exercise~~and ~~such~~the ~~rights~~repurchase of approximately $188.0 million aggregate principal amount of outstanding convertible notes. As a result of the transformation from these transactions, we have positioned the ~~commercial~~Company ~~success~~to ofactively ~~NUCYNTA~~pursue ~~and~~business ~~NUCYNTA~~development, ERstrategic ~~will~~partnerships, ~~depend~~and ~~almost~~investment ~~entirely~~opportunities onto ~~Collegium’s~~build ~~commercialization~~and ~~efforts~~grow for the future.

AsIf aour ~~company,~~executive ~~Collegium~~management ~~has~~team is not able, in a ~~limited~~timely ~~history~~manner, ofto ~~selling~~develop, implement and ~~marketing~~execute ~~pharmaceutical~~successful ~~products. Collegium’s~~business ~~ability~~strategies toand ~~successfully~~plans ~~commercialize~~to maintain and ~~generate~~increase our product revenues ~~from~~following ~~NUCYNTA~~the execution of the transactions above, our business, financial condition and ~~NUCYNTA~~results ERof operations will be materially and adversely affected, and the existing business may be required to take steps to reduce its costs at some point in time. While our ~~largest~~Chief ~~selling~~Executive ~~product~~Officer and other executive officers have significant industry-related experience, ~~depends~~it onmay atake ~~number~~time ofto ~~factors~~develop, ~~including~~implement and execute our business strategies and plans. Any delay in the execution of our business plans by our executive management team, ~~but~~or ~~not~~any ~~limited~~future changes to such management team, ~~Collegium’s~~could affect our ability to: develop, implement and execute our business strategies and plans, which could have a material adverse effect on our business, financial condition and results of operations.

•Further, ~~develop~~our future business strategies and ~~execute~~plans ~~its~~may ~~sales~~differ ~~and~~materially, ~~marketing~~or may continue to evolve, from those we previously pursued. If our business strategies ~~for~~and ~~NUCYNTA~~plans, or our efforts to realize future operational efficiencies, cause disruption in our business or operations or do not achieve the level of success or results we anticipate, our business, financial condition and ~~NUCYNTA~~results ~~ER;~~of operations will be materially and adversely affected.

•If ~~achieve,~~we ~~maintain~~do not successfully commercialize CAMBIA and ~~grow~~Zipsor, ~~market~~or ~~acceptance~~Alvogen ofdoes not successfully commercialize Gralise, our business, financial condition and ~~demand~~results ~~for,~~of ~~NUCYNTA~~operations will be materially and ~~NUCYNTA~~adversely ~~ER;~~affected.

•In ~~obtain~~October 2011, we began commercial sales of Gralise®. Effective as of January 10, 2020, we divested our rights, title and ~~maintain~~interest ~~adequate~~in ~~coverage~~and to Gralise to Alvogen. Under the terms of the agreement, ~~reimbursement~~Alvogen will pay us 75% of its first $70.0 million of Gralise net sales after the closing. In June 2012, we acquired Zipsor and ~~pricing~~began commercial promotion of Zipsor in July 2012. In December 2013, we acquired CAMBIA and began commercial promotion of CAMBIA in February 2014. In addition to the risks discussed elsewhere in this section, our ability to successfully commercialize and generate revenues from ~~managed~~CAMBIA ~~care~~and Zipsor, ~~government~~and Alvogen’s ability to successfully commercialize and ~~other~~generate ~~third-~~revenues ~~party~~from ~~payers;~~Gralise, depends on a number of factors, including, but not limited to, our and Alvogen’s ability to:

• ~~maintain~~develop and ~~manage~~execute ~~the~~our ~~necessary~~ sales, ~~marketing, manufacturing, managed markets,~~ and ~~other~~marketing ~~capabilities~~strategies ~~and~~for ~~infrastructure~~our ~~that~~products ~~are required to successfully integrate~~ and ~~commercialize NUCYNTA and NUCYNTA ER~~Gralise;

• ~~obtain~~achieve, ~~adequate~~maintain ~~supply~~and ofgrow ~~NUCYNTA~~market acceptance of, and ~~NUCYNTA~~demand ~~ER;~~for, our products and Gralise;

• ~~comply~~obtain ~~with~~and ~~applicable~~maintain ~~legal~~adequate coverage, reimbursement and ~~regulatory~~pricing ~~requirements.~~from managed care, government and other third-party payers;

~~Additional factors that may affect the success of our commercialization arrangement with Collegium include the following:~~15

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

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

• Collegium may acquire or develop alternative products;

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

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

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

• the outcome of the appeal of the court’s ruling in our litigation against the Abbreviated New Drug Application (ANDA) filers seeking to prevent such ANDA filers from marketing a generic version of NUCYNTA and NUCYNTA ER in the U.S.;

• Collegium may experience financial difficulties;

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• ~~Collegium~~maintain, ~~may~~manage ~~fail~~or toscale ~~comply~~the ~~with~~necessary ~~its~~sales, ~~obligations~~marketing, ~~under~~manufacturing, ~~our~~managed ~~commercialization~~markets and ~~related~~other ~~agreements;~~capabilities orand infrastructure that are required to successfully integrate and commercialize our products and Gralise;

• ~~Collegium’s~~obtain ~~involvement~~adequate insupply ~~governmental~~of ~~investigations~~our ~~and~~products ~~inquires or lawsuits~~ and ~~the disposition of such proceedings.~~Gralise;

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

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

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

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

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

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

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

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

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

• obtain adequate supply of our products;

• maintain and extend intellectual property protection for our products; and


•	comply with applicable legal and regulatory requirements.

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

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

We have one qualified supplier for the active pharmaceutical ingredient in each of ~~NUCYNTA ER, NUCYNTA,~~ CAMBIA, ~~Zipsor~~ and ~~Gralise~~Zipsor. AnCatalent ~~affiliate~~Ontario ofLimited ~~Janssen~~(Catalent), ~~Pharma~~which is ~~currently~~located ~~the~~in Ontario, Canada, is our sole supplier offor ~~NUCYNTA~~Zipsor ER pursuant to a manufacturing ~~supply~~ agreement we entered into with ~~such~~Catalent ~~entity~~effective inJune ~~April~~30, ~~2015~~2018. ~~Halo Pharmaceutical~~MiPharm, ~~Inc~~S.p.A, ~~(Halo)~~which is ~~the~~located in Milan, Italy, is our sole supplier offor ~~NUCYNTA~~CAMBIA pursuant to a manufacturing and supply agreement that we ~~entered~~assumed ~~into~~in connection with ~~Halo~~our acquisition of CAMBIA in ~~June~~December ~~2017~~2013. ~~Patheon~~We ~~Puerto~~do ~~Rico~~not ~~Inc.~~have, ~~(Patheon)~~and iswe ~~our~~do ~~sole~~not ~~supplier~~intend ~~for~~to ~~Gralise~~establish ~~pursuant~~in tothe aforeseeable ~~manufacturing~~future, ~~and~~internal ~~supply~~commercial-scale ~~agreement~~manufacturing capabilities. Rather, we ~~entered~~intend ~~into~~to ~~with~~use ~~Patheon~~the infacilities ~~September~~of ~~2011~~third parties to manufacture products for commercialization and clinical trials. ~~Catalent~~Our ~~Ontario~~dependence ~~Limited~~on ~~(Catalent)~~third isparties for the manufacture of our ~~sole~~products ~~supplier~~and ~~for~~our ~~Zipsor~~product ~~pursuant~~candidates may adversely affect our ability to obtain such products on a ~~manufacturing~~timely ~~agreement~~or wecompetitive ~~entered~~basis, ~~into~~if ~~with~~at ~~Catalent~~all. ~~effective~~Any ~~June~~stock 30out, ~~2018.~~quality ~~MiPharm~~concern or failure to obtain sufficient supplies of CAMBIA or Zipsor, ~~S.p.A~~or isthe necessary active pharmaceutical ingredients, excipients or components, from our ~~sole~~suppliers ~~supplier~~would ~~for~~adversely ~~CAMBIA~~affect ~~pursuant~~our tobusiness, results of operations and financial condition.

13The manufacturing process for pharmaceutical products is highly regulated, and regulators may shut down manufacturing facilities that they believe do not comply with regulations. We, our third-party manufacturers and our suppliers are subject to numerous regulations, including current FDA regulations governing manufacturing processes, stability testing, record keeping, product serialization and quality standards. Similar regulations are in effect in other countries. Our third-party manufacturers and suppliers are independent entities who are subject to their own unique operational and financial risks which are out of our control. If we or any third-party manufacturer or supplier fails to perform as required or fails to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver adequate supplies of our products to our customers on a timely basis, or to continue our clinical trials, could be adversely affected. The manufacturing processes of our third-party manufacturers and suppliers may also be found to violate the proprietary rights of others. To the extent these risks materialize and adversely affect such third-party manufacturers’ and/or suppliers’ performance obligations to us, and we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers or suppliers, our business, results of operation and financial condition could be adversely affected.

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a manufacturing and supply agreement that we assumed in connection with our acquisition of CAMBIA in December 2013. We do not have, and we do not intend to establish in the foreseeable future, internal commercial scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for commercialization and clinical trials. Our dependence on third parties for the manufacture of our products and our product candidates may adversely affect our ability to obtain such products on a timely or competitive basis, if at all. Any stock out, or failure to obtain sufficient supplies of NUCYNTA or NUCYNTA ER, or the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture NUCYNTA or NUCYNTA ER, would adversely affect Collegium’s ability to commercialize such products, which would adversely affect our results of operations and financial condition. Any stock out, quality concern or failure to obtain sufficient supplies of Gralise, CAMBIA, or Zipsor, or the necessary active pharmaceutical ingredients, excipients or components from our suppliers would adversely affect our business, results of operations and financial condition.

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

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

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

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

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

We may be unable to enter into future commercialization or collaborative arrangements on acceptable terms, and we may be unable to maintain our current commercialization arrangement with Collegium on acceptable terms, either of which 16

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~~could~~infringement ~~harm~~of the licensed patents or our ~~ability~~other tointellectual ~~develop~~property ~~and~~rights ~~commercialize~~by ~~our~~third ~~current~~parties. Moreover, negotiating commercialization and ~~potential~~collaborative ~~future~~arrangements ~~products~~often ~~and~~takes ~~technologies.~~considerably ~~Other~~longer ~~factors~~to ~~relating~~conclude than the parties initially anticipate, which could cause us to ~~collaborations~~enter into less favorable agreement terms that ~~may~~delay ~~adversely~~or ~~affect~~defer recovery of our development costs and reduce the ~~commercial~~funding ~~success~~available to support key programs. Any failure by our commercialization or collaborative partners to abide by the terms of their respective agreements with us (including their failure to accurately calculate, report or pay any royalties payable to either us or a third party or their failure to repay, in full or in part, either any outstanding receivables or any other amounts for which we are entitled to reimbursement) may adversely affect our ~~products~~results ~~include:~~of operations.

We are not always able to enter into commercialization or collaborative arrangements on acceptable terms, which can harm our ability to develop and commercialize our current and potential future products and technologies. Other factors relating to collaborations that may adversely affect the commercial success of our products include:


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


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


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


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

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

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

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

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

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

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

Diclofenac, the active pharmaceutical ingredient in Zipsor, is an NSAID that is approved in the U.S. for the treatment of mild to moderate pain in adults, including the symptoms of arthritis. Both branded and generic versions of diclofenac are marketed in the U.S. Zipsor competes against other drugs that are widely used to treat mild to moderate pain in the acute setting. In addition, a number of other companies are developing NSAIDs in a variety of dosage forms for the treatment of mild to moderate pain and related indications. Other drugs are in clinical development to treat acute pain.17

Tapentadol, the active pharmaceutical ingredient in NUCYNTA and NUCYNTA ER, is a proprietary opioid analgesic that is marketed in the U.S. by our commercialization partner Collegium. NUCYNTA and NUCYNTA ER compete with a number of branded and generic products that are widely used to treat moderate to severe pain, including neuropathic pain associated with DPN, and acute pain, respectively. These products include OxyContin® (oxycodone hydrochloride extended-release tables), which is owned by Purdue and is approved for marketing in the U.S. for the management of pain severe enough

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~~to require daily~~Diclofenac, ~~around-~~the~~-clock,~~ ~~long-term~~active ~~opioid~~pharmaceutical ~~treatment~~ingredient ~~and~~in ~~for which alternative treatment options are inadequate. OxyContin® has achieved significant levels of market acceptance. Unlike NUCYNTA ER~~Zipsor, ais ~~number~~an ofNSAID ~~long-~~that ~~acting~~is ~~opioids~~approved have product labelling related to their abuse deterrent properties, which may put NUCYNTA ER at a competitive disadvantage. There are also a number of branded and generic short and long acting opioids, including oxycodone, oxymorphone, fentanyl patch, morphine, buprenorphine patch, tramadol, hydrocodone and hydromorphone, which have received approval and are marketed in the U.S. for the treatment of ~~moderate~~mild to ~~severe~~moderate pain, including chronic and acute pain. More opioid development and launches of both generics and brands are expected to continue. For example, Butrans (promoted by Purdue) has been facing generic entrants since June 2017. In addition, Pfizer’s new opioid Troxyca ER was approved in ~~2016~~adults, ~~but~~including ~~has~~the ~~not~~symptoms ~~yet~~of ~~launched~~arthritis. ~~Teva’s~~Both ~~Vantrela~~branded ~~ER was approved in 2017, but has not yet launched. Inspirion received approval for MorphaBond™ ER (morphine sulfate)~~ and ~~RoxyBond~~generic ~~(oxycodone~~versions ~~HCL). MorphaBond launched in the fourth quarter~~ of ~~2017~~diclofenac ~~and~~are ~~RoxyBond had a marketing start date of January 2018. Lyrica (pregabalin), which is~~ marketed ~~by Pfizer, is approved for marketing~~ in the U.S. ~~for~~Zipsor ~~the~~competes ~~treatment~~against ofother ~~neuropathic~~drugs ~~pain~~that ~~associated~~are ~~with~~widely ~~DPN. In~~used ~~January~~to ~~2018,~~treat ~~Pfizer~~mild ~~began~~ to ~~sell~~moderate ~~Lyrica~~pain CRin ~~(pregabalin extended-release tablets), a once-daily treatment for~~ the ~~management~~acute ~~of DPN and PHN~~setting. ~~Branded~~In ~~and~~addition, ~~generic~~a ~~versions~~number of ~~duloxetine~~other ~~and~~companies ~~lidocaine~~are ~~have~~developing ~~also~~NSAIDs ~~been approved for marketing~~ in ~~the U.S. for the treatment of neuropathic pain associated with DPN. There are~~ a ~~number~~variety of ~~other~~dosage ~~products~~forms ~~and treatments prescribed~~ for, ~~or under development for,~~ the ~~management~~treatment of ~~chronic~~mild ~~and~~to ~~acute~~moderate pain, ~~including~~and ~~neuropathic~~related ~~pain~~indications. ~~associated~~Other ~~with~~drugs ~~DPN, which~~ are ~~now or may become competitive with NUCYNTA and NUCYNTA ER. Further,~~ in ~~light~~clinical ofdevelopment ~~the FDA’s efforts~~ to ~~spur~~treat ~~the~~acute ~~development of non-opioid medications for chronic~~ pain~~, we expect that additional other competitive products and treatments may be developed and commercialized~~.

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

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


•	government health administration authorities;


•	private health insurers;


•	health maintenance organizations;


•	managed care organizations;


•	pharmacy benefit management companies; and


•	other healthcare-related organizations.

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

Third -party payers frequently require pharmaceutical companies to negotiate agreements that provide discounts or rebates from list prices and that protect the payers from price increases above a specified annual limit. We and our commercialization ~~partner~~partners have agreed to provide such discounts and rebates to certain third -party payers. We expect increasing pressure to offer larger discounts and rebates or discounts and rebates to a greater number of third -party payers to maintain acceptable reimbursement levels for and access to our products for patients at co-pay levels that are reasonable and customary. Consolidation among large third -party payers may increase their leverage in negotiations with pharmaceutical companies. If we or our commercialization ~~partner~~partners are forced to provide additional discounts and rebates to third -party payers to maintain acceptable access to our products for patients, our results of operations and financial condition could be adversely affected. If third -party payers do not accurately and timely report the eligibility and utilization of our products under their plans, our reserves for rebates or other amounts payable to third -party payers may be lower than the amount we are invoiced and we may be required to dispute the amount payable, which would adversely affect our business, financial condition and results of operations. For example, we have had, and continue to have, disputes with managed care providers over rebates related to our products. Even when rebate claims made by such managed care providers are without merit, we may be forced to pay such disputed amounts to the extent our failure to do so could otherwise adversely impact our business, such as our ability to maintain a favorable position on such provider’s formulary. In addition, if competitors reduce the prices of their products, or otherwise demonstrate that they are better or more cost effective than our products, this may result in a greater level of reimbursement for their products relative to our products, which would reduce sales of our products and harm our results of operations. The process for determining whether a third -party payer will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that such third -party payer will pay for the product once coverage is approved. Third -party payers may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication, including one or more of our products. Any third -party payer decision not to approve pricing for, or provide adequate coverage and reimbursement of, our products, including by reducing, limiting or denying reimbursement for new products or excluding products that were previously eligible for reimbursement, would limit the market acceptance and commercial prospects of our products and harm our business, financial condition and results of operations. In addition, any third-party payer decision to impose restrictions, limitations or conditions on prescribing or reimbursement of our products, including on the dosing or duration of prescriptions for our products, would harm our business, financial condition and results of operations.

16There have been, and there will continue to be, legislative, regulatory and third-party payer proposals to change the healthcare system in ways that could impact our ability to commercialize our products profitably. We anticipate that the federal and state legislatures and the private sector will continue to consider and may adopt and implement healthcare policies, such as the Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act, intended to curb rising healthcare costs. These cost-containment measures may include: controls on government-funded reimbursement for drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs; controls on healthcare providers; challenges to or limits on the pricing of drugs, including pricing controls or limits or prohibitions on

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limiting or denying reimbursement for new products or excluding products that were previously eligible for reimbursement, would limit the market acceptance and commercial prospects of our products and harm our business, financial condition and results of operations. In addition, any third party payer decision to impose restrictions, limitations or conditions on prescribing or reimbursement of our products, including on the dosing or duration of prescriptions for our products, would harm our business, financial condition and results of operations.

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

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

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

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

We have been involved in patent litigation lawsuits against filers of ANDAs (the Filers) seeking to market generic versions of NUCYNTA and NUCYNTA ER before the expiration of the patents listed in the Patent and Exclusivity Information Addendum of FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book) for these two products. A two-week bench trial was completed on April 27, 2016. On September 30, 2016, the Court issued its opinion finding all three of the Orange Book patents valid and enforceable. On April 11, 2017, the Court entered a final judgment, which included an injunction enjoining the Filers from engaging in certain activities with regard to tapentadol (the active ingredient in NUCYNTA) and ordering the effective date of any approval of Actavis, Actavis UT, and Roxane’s ANDAs, and Alkem’s ANDA for NUCYNTA IR to be no earlier than the expiry of the ’364 Patent (June 27, 2025), and the effective date of any approval of Alkem’s ANDA for NUCYNTA ER to be no early than the expiry of the ’130 Patent (September 22, 2028). The foregoing periods of exclusivity may in the future be extended with the award of pediatric exclusivity. The Court’s final judgment remains subject to the results of the appeals filed by the parties. It is estimated that the Federal Circuit will issue a written decision in the first quarter of 2019. If we do not prevail with regard to such appeal, we may be unable to maintain the currently anticipated period of patent exclusivity with regard to NUCYNTA and NUCYNTA ER. Any introduction of one or more generic versions of NUCYNTA or NUCYNTA ER would adversely affect Collegium’s ability to commercialize such products, and in turn would adversely affect our business, results of operations and financial condition.

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

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

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

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

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

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

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

The DEA requires substantial evidence and documentation of expected legitimate medical and scientific needs before assigning quotas for these activities. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether to make such adjustments. Based on a variety of factors, including public policy considerations, the DEA may set the aggregate quota lower for tapentadol than the total amount requested by individual manufacturers. Through our manufacturing partner we are permitted to ask the DEA to increase our manufacturer’s procurement quota after it is initially established. However, we cannot be certain that the DEA would act favorably upon such a request. In addition, our manufacturers obtain a procurement quota for tapentadol for all tapentadol products manufactured at their facility, which is allocated to NUCYNTA and NUCYNTA ER, as applicable, at the manufacturer’s discretion. The DEA recently proposed reducing the quota for controlled substances to be manufactured in the U.S. in 2019, although no changes to the quotas for tapentadol were recommended. Additionally, the DEA has proposed various changes to its process for setting production and procurement quota. Any delay or refusal by the DEA or

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~~our~~reimbursement ~~manufacturers~~for inspecific ~~establishing~~products ~~the~~through ~~production~~other ormeans; ~~procurement~~requirements ~~quota~~to ortry ~~granting~~less ~~sufficient~~expensive ~~production~~products or ~~procurement~~generics ~~quota~~before toa ~~meet~~more ~~commercial~~expensive ~~demand~~branded orproduct; ~~clinical~~and ~~needs~~public funding for cost effectiveness research, orwhich ~~any~~may ~~reduction~~be used by government and private third-party payers to make coverage and payment decisions. In California, voters rejected Proposition 61 in November 2016, a ballot initiative that would have prohibited the ~~DEA~~state orfrom ~~our~~buying prescription drugs from a drug manufacturer inat a price over the ~~allocated~~lowest ~~quota~~price paid for ~~tapentadol~~such drug by U.S. Department of Veterans Affairs. Although Proposition 61 was defeated, these and other cost-containment or price-control measures, if adopted at the federal or state level, could ~~adversely~~significantly ~~affect~~decrease the ~~ability~~price ofthat ~~Collegium~~we toor ~~commercialize~~our ~~NUCYNTA~~commercialization ~~and~~partners ~~NUCYNTA~~receive ERfor our products and inany ~~turn~~product ~~adversely~~that ~~affect~~we ~~our~~may ~~business~~develop or acquire, ~~results~~which ofwould ~~operations~~harm ~~and~~our business, financial condition and results of operations.

~~The~~If ~~FDA-mandated~~generic ~~Risk~~manufacturers ~~Evaluation~~use litigation and ~~Mitigation~~regulatory ~~Strategy~~means ~~program~~to ~~may~~obtain ~~limit~~approval ~~the~~for ~~commercial~~generic ~~success~~versions of ~~NUCYNTA~~our ERproducts, our business will be materially and ~~NUCYNTA~~adversely affected.

~~NUCYNTA~~Under ERthe ~~and~~Federal ~~NUCYNTA~~Food, ~~are~~Drug, ~~subject to a FDA-mandated Opioid Analgesic Risk Evaluation~~ and ~~Mitigation~~Cosmetic ~~Strategy~~Act (~~REMS~~FDCA), ~~protocol. This~~the ~~REMS~~FDA ~~protocol~~can ~~requires~~approve ~~opioid~~an ~~manufacturers~~ANDA tofor ~~make~~a ~~training~~generic ~~available~~version toof ~~health~~a ~~care~~branded ~~practitioners~~drug ~~(and~~without ~~their~~the ~~patients)~~ANDA ~~who~~applicant ~~practice~~undertaking ~~pain~~the ~~management~~clinical ~~and~~testing ~~prescribe~~necessary ~~immediate~~to ~~and~~obtain ~~extended~~approval ~~release~~to ~~opioids~~market ~~concerning~~a ~~the~~new ~~safe use of opioid analgesics~~drug. ~~The~~In ~~FDA-mandated~~place ~~REMS~~of ~~protocol~~such ~~may~~clinical ~~reduce~~studies, ~~the~~an ~~number~~ANDA ofapplicant ~~physicians,~~usually ~~health~~needs ~~care~~only ~~practitioners~~to ~~and~~submit ~~pharmacies~~data demonstrating that ~~are~~its ~~willing~~product tohas ~~prescribe~~the ~~opioid~~same ~~products~~active ~~including~~ingredient(s) ~~NUCYNTA ER~~ and~~/or~~ ~~NUCYNTA,~~is asbioequivalent ~~well~~to as the ~~number~~branded ofproduct, ~~patients~~in ~~who~~addition ~~are willing~~ to ~~use~~any ~~these~~data ~~products.~~necessary ~~Because~~to ofestablish ~~these~~that ~~factors,~~any ifdifference ~~Collegium~~in isstrength, ~~not~~dosage, ~~able~~form, toinactive ~~successfully~~ingredients ~~promote~~or ~~NUCYNTA~~delivery ERmechanism ~~and~~does ~~NUCYNTA,~~not ~~our~~result ~~business,~~in ~~results~~different ofsafety ~~operations~~or ~~and~~efficacy ~~financial~~profiles, ~~condition~~as ~~could~~compared beto ~~adversely~~the ~~affected~~reference drug.

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

~~Our~~Any ~~operations~~introduction ~~and~~of ~~infrastructure,~~one ~~and~~or ~~those~~more ofproducts ~~our~~generic ~~partners~~to Gralise, ~~third~~CAMBIA, ~~party~~or ~~suppliers~~Zipsor, ~~and~~whether ~~vendors~~as ~~are~~a ~~vulnerable~~result toof ~~damage~~an ANDA or ~~interruption~~otherwise, ~~from~~would ~~cyber-attacks~~harm ~~and~~our ~~security breaches~~business, ~~human~~financial ~~error,~~condition ~~natural~~and ~~disasters,~~results ~~fire,~~of ~~flood,~~operations. ~~the~~The ~~effects~~filing of ~~climate~~the ~~change,~~ANDAs ~~power~~described ~~loss~~above, ~~telecommunications~~or ~~failures,~~any ~~equipment~~other ~~failures,~~ANDA ~~intentional~~or ~~acts~~similar ofapplication ~~theft,~~in ~~vandalism,~~respect ~~terrorism~~to ~~and~~any ~~similar~~of ~~events. We~~our products, could have ~~not~~an ~~established~~adverse aimpact ~~formal~~on ~~disaster~~our ~~recovery~~stock ~~plan~~price. Moreover, ~~and~~if ~~our~~the ~~back-up~~patents ~~operations~~covering ~~and~~ our ~~business~~products ~~interruption~~are ~~insurance~~not ~~may~~upheld ~~not~~in belitigation ~~adequate~~or toif ~~compensate~~a usgeneric ~~for~~competitor ~~losses~~is ~~that~~found ~~occur.~~not Ato ~~significant~~infringe ~~business~~these ~~interruption~~patents, ~~could~~the ~~result~~resulting ingeneric ~~losses~~competition orwould ~~damages~~have ~~incurred~~a bymaterial usadverse ~~and~~effect ~~require~~on usour tobusiness, ~~cease~~financial orcondition ~~curtail~~and ~~our~~results of operations.

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

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

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

~~Although~~In ~~our~~the ~~Board~~ordinary course of ~~Directors~~our business, ~~through~~we ~~our~~collect, ~~Audit~~maintain ~~Committee,~~and ~~regularly~~transmit ~~discusses~~sensitive ~~with~~data ~~management~~on our ~~policies~~computer networks and ~~practices regarding~~ information technology systems, ~~information~~including ~~management~~our ~~systems~~intellectual property and ~~related~~proprietary ~~infrastructure,~~or ~~including~~confidential ~~our~~business information. ~~technology~~The ~~and~~secure ~~information~~maintenance ~~management~~of ~~security,~~this ~~risk~~information ~~management~~is ~~and~~critical ~~back-up~~to ~~policies,~~our ~~practices~~business. ~~and~~We ~~infrastructure,~~believe itthat iscompanies ~~often~~have ~~difficult~~been increasingly subject to ~~anticipate~~a orwide ~~immediately~~variety ~~detect~~of ~~such~~security incidents, cyber-attacks and ~~the~~other ~~damage~~attempts ~~that~~to ~~may~~gain beunauthorized ~~caused by such incidents~~access. These ~~data~~threats ~~breaches~~can ~~and~~come ~~any~~from ~~unauthorized~~a ~~access~~variety orof ~~disclosure~~sources, ofranging ~~our~~in ~~information~~sophistication orfrom ~~intellectual~~an ~~property~~individual ~~could~~hacker ~~compromise~~to ~~our~~a ~~intellectual~~state-sponsored ~~property~~attack and ~~expose~~motives ~~sensitive~~(including ~~business~~corporate ~~information,~~espionage). ~~including~~Cyber ~~our~~threats ~~financial~~may ~~information~~be generic, or ~~the~~they ~~information~~may ofbe ~~our business partners. Cyber~~custom-~~attacks~~crafted ~~could cause us~~ to ~~incur~~target ~~significant~~our ~~remediation~~information ~~costs,~~systems. ~~result~~Cyber-attacks inare ~~product~~becoming ~~development~~increasingly ~~delays,~~more ~~disrupt~~prevalent ~~key business operations~~ and ~~divert~~much ~~attention~~harder ofto ~~management~~detect and ~~key~~defend ~~information technology resources~~against. Our network ~~security~~ and ~~data~~storage ~~recovery~~applications ~~measures~~ and those of our third -party vendors may ~~not~~ be ~~adequate to protect against such security breaches and disruptions. These incidents could also~~ subject us to ~~liability,~~unauthorized ~~expose~~access usby tohackers ~~significant~~or ~~expense~~breached ~~and~~due ~~cause significant harm~~ to ~~our~~operator ~~business.~~

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~~Our~~error, ~~ability~~malfeasance toor ~~successfully~~other ~~manage~~system our business following our headquarters relocation depends on our ability to successfully transition institutional knowledge and to successfully attract and retain qualified personnel at our new locationdisruptions.

WeAlthough ~~relocated~~ our ~~corporate~~Board ~~headquarters~~of ~~from Newark~~Directors, ~~California~~through toour ~~Lake~~Audit ~~Forest~~Committee, ~~Illinois~~regularly indiscusses ~~the~~with ~~third~~management ~~quarter~~our ofpolicies ~~2018~~and practices regarding information technology systems, information management systems and ~~have~~related ~~reduced~~infrastructure, including our ~~staff~~information ~~throughout~~technology ~~2018. Although~~and ~~our~~information ~~relocation~~management security, risk management and ~~transition~~back-up ispolicies, ~~substantially~~practices ~~complete~~and infrastructure, ~~there~~it ~~may~~is beoften ~~continued~~difficult ~~costs~~to ~~and~~anticipate ~~delays~~or ~~associated~~immediately ~~with~~detect ~~relocation~~such incidents and ~~such~~the ~~costs~~damage that may ~~exceed~~be ~~our~~caused ~~projections. Further,~~by ~~with~~such ~~our~~incidents. ~~transition,~~These wedata ~~may~~breaches ~~face~~and ~~challenges~~any inunauthorized ~~maintaining~~access ~~the~~or ~~continuity~~disclosure of our ~~operations~~information or intellectual property could compromise our intellectual property and ~~historical~~expose ~~knowledge.~~sensitive ~~Management~~business ~~may~~information, beincluding ~~required~~our tofinancial ~~devote~~information ~~substantial~~or ~~time~~the toinformation ~~transitioning~~of ~~institutional~~our ~~knowledge,~~business ~~which~~partners. ~~time~~Cyber-attacks could ~~otherwise~~cause beus ~~devoted~~ to ~~focusing~~incur onsignificant ~~ongoing~~remediation ~~business~~costs, ~~operations~~result ~~and~~in ~~other~~product ~~initiatives~~development ~~and~~delays, ~~opportunities.~~disrupt ~~Our~~key business ~~could~~operations ~~also~~and bedivert ~~materially~~attention ~~adversely~~of ~~affected~~management ifand wekey ~~are~~information ~~unable~~technology toresources. ~~retain~~Our ~~key~~network ~~employees~~security orand ~~recruit~~data ~~qualified~~recovery ~~personnel~~measures inand athose ~~timely~~of ~~fashion,~~our orthird ifparty wevendors ~~are~~may ~~required~~not tobe ~~incur~~adequate ~~unexpected~~to ~~compensation~~protect ~~costs~~against tosuch ~~retain~~security ~~key~~breaches ~~employees~~and disruptions. ~~Any~~ ~~such~~These ~~difficulties~~incidents could ~~have~~also ansubject ~~adverse~~us ~~effect~~to onliability, ~~our~~expose ~~business,~~us ~~results~~to ofsignificant ~~operations~~expense orand ~~financial~~cause ~~condition~~significant harm to our business.

WeOur ~~have~~success ~~recently~~is ~~experienced~~dependent ain ~~significant~~large ~~transition~~part inupon the continued services of our executive management team with whom we do not have employment agreements.

WeOur ~~recently~~success ~~experienced~~is ~~changes~~dependent in ~~our~~large ~~executive~~part ~~management~~upon ~~team~~the ascontinued weservices ~~transitioned~~of ~~our~~members ~~corporate~~of ~~headquarters to Lake Forest, Illinois. If~~ our ~~newly appointed~~ executive ~~team~~management ~~is not able~~team, inand aon ~~timely~~our ~~manner,~~ability to ~~develop,~~attract ~~implement~~ and ~~execute~~retain ~~successful~~key ~~business~~management ~~strategies~~ and ~~plans~~operating topersonnel. ~~maintain~~We ~~and~~do ~~increase~~not ~~our~~have ~~product~~agreements ~~revenues,~~with ~~our~~any ~~business,~~of ~~financial~~our ~~condition~~executive ~~and~~officers ~~results~~that ofprovide ~~operations~~for ~~will~~their becontinued ~~materially~~employment ~~and~~with ~~adversely affected~~us. ~~Moreover~~ Management, ~~the~~scientific ~~changes~~and tooperating ~~our~~personnel ~~executive~~are ~~management~~in ~~team~~high ~~may~~demand ~~result~~ in ~~disruption to the operation of~~ our ~~business. While~~industry ~~our Chief Executive Officer~~ and ~~newly~~are ~~appointed~~often ~~executive~~subject ~~officers~~to ~~have~~competing ~~significant~~offers. ~~industry-related~~The ~~experience,~~loss itof ~~may~~the ~~take~~services ~~time~~of ~~for~~one ~~the~~or ~~team~~more tomembers ~~become~~of ~~fully~~management ~~integrated~~or ~~and~~key ~~such~~employees ~~team~~or ~~may~~the ~~continue~~inability to ~~evolve~~hire ~~until~~additional apersonnel ~~fully~~as ~~integrated~~needed ~~team~~could isresult ~~established.~~in ~~Any~~delays ~~delay~~ in the ~~integration~~research, ofdevelopment ~~our~~and ~~executive~~commercialization ~~management~~of ~~team could affect~~ our ~~ability~~products ~~to develop, implement~~ and ~~execute~~potential ~~our~~product ~~business strategies and plans~~candidates, ~~which~~or ~~could~~otherwise ~~have~~adversely aimpact ~~material adverse effect on~~ our business~~, financial condition and results of operations~~.

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

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

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

Risks Related to Product Development

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

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

20Product candidates are subject to the risk that any or all of them may be found to be ineffective or unsafe, or otherwise may fail to receive necessary regulatory clearances. The FDA or other applicable regulatory agencies may determine that our data is not sufficiently compelling to warrant marketing approval and require us to engage in additional clinical trials or provide further analysis, which may be costly and time-consuming. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in preclinical studies or earlier clinical trials. If our current or future product candidates fail at any stage of development, they will not receive regulatory approval, we will not be able to commercialize them and we will not receive any return on our investment in those product candidates.

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

In November 2017 we acquired the exclusive rights to market the specialty drug long-acting cosyntropin (synthetic ACTH) in the U.S. and Canada. Long-acting cosyntropin is an alcohol-free formulation of a synthetic analogue of ACTH. In February 2019, notification of acceptance for filing was received from the FDA for our 505(b)(2) NDA for our novel injectable formulation of long-acting cosyntropin. We, together with our development partner, seek approval for the use of this product as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. As previously announced, enrolling and dosing in pediatric patients continues in a new clinical trial evaluating long-acting cosyntropin for the treatment of infantile spasms, a specific seizure type present in the infantile epilepsy spectrum, a rare pediatric disorder. The expected timing of NDA filings and related approvals, the successful execution of the clinical trial and our overall strategy with regard to its application may not achieve our intended results. Our overall strategy to bring our injectable formulation of long-acting cosyntropin to market in the U.S. and Canada is subject to certain risks and uncertainties. The NDA may not be successful. Further, if our product manufacturing processes or facilities do not satisfy regulatory requirements, FDA approval may not be granted. Even if we receive FDA approval for our intended diagnostic indication, the ability to commercialize the product for diagnostic use may not generate significant revenue.

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

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


•	negative or inconclusive results;


•	patient enrollment rates;


•	patient noncompliance with the protocol;


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

• any findings resulting from FDA inspections of ~~our~~ clinical operations;

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


•	failure to comply with good clinical practices;

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


•	compliance with applicable laws and regulations;

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

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

• delays or failures in recruiting qualified patients to participate in ~~our~~ clinical trials; and


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

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

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


•	market acceptance;

• a cost-effective commercial -scale production; and


•	reimbursement under private or governmental health plans.

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

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

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

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

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•these ~~reimbursement~~trials ~~under~~may ~~private~~not be completed or ~~governmental~~completed ~~health~~as ~~plans~~planned, which could delay or prevent us or our collaborative partners from obtaining regulatory approvals for product candidates.

Any material delay or failure in the governmental approval process and/or the successful commercialization of our potential products or those of our collaborative partners could adversely impact our business, financial condition and results of operations.

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

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

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

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

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

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

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the FDA may not agree with our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. For example, the FDA may determine that data regarding our product candidate, long-acting cosyntropin, is not sufficiently compelling to warrant regulatory approval, and the FDA may require us to engage in additional clinical trials or provide further analysis, which may be costly and time-consuming. Significant clinical trial delays could impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

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

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

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

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

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~~Further~~(2) application. Accordingly, ~~with~~we ~~respect~~may toinvest ~~our~~a ~~approved~~significant ~~products,~~amount ~~once~~of ~~regulatory~~time ~~approval~~and isexpense ~~obtained,~~in athe ~~marketed~~development ~~product~~of ~~and~~one ~~its~~or ~~manufacturer~~more ~~are~~products ~~subject~~only to ~~continual~~be ~~review.~~subject ~~The~~to ~~discovery~~significant ofdelay ~~previously~~and ~~unknown~~patent ~~problems~~litigation ~~with~~before asuch ~~product~~products ~~or manufacturer~~ may ~~result~~be incommercialized, ~~restrictions~~if onat ~~the~~all. ~~product,~~A ~~manufacturer~~Section or505(b)(2) ~~manufacturing~~application ~~facility,~~may ~~including~~also ~~withdrawal~~not ofbe ~~the~~approved ~~product~~until ~~from~~any ~~the~~non-patent ~~market.~~exclusivity, ~~Manufacturers~~such ofas ~~approved~~exclusivity ~~products~~for ~~are~~obtaining ~~also~~approval ~~subject~~of toa ~~ongoing~~new ~~regulation~~chemical ~~and inspection~~entity, ~~including~~listed ~~compliance~~in ~~with~~the ~~FDA~~Orange ~~regulations~~Book ~~governing~~for ~~cGMP~~the orreferenced ~~Quality~~product ~~System~~has ~~Regulation (QSR)~~expired. The ~~FDCA,~~FDA ~~the~~may ~~CSA~~also ~~and~~require ~~other~~us ~~federal~~to ~~and~~perform ~~foreign~~one ~~statutes~~or ~~and~~more ~~regulations~~additional ~~govern~~clinical ~~and~~studies ~~influence~~or ~~the~~measurements ~~testing,~~to ~~manufacturing,~~support ~~packing,~~the ~~labeling,~~change ~~storing,~~from ~~record~~the ~~keeping,~~approved ~~safety,~~product. ~~approval,~~The ~~advertising,~~FDA ~~promotion,~~may ~~sale~~then ~~and~~approve ~~distribution~~the ofnew ~~our~~formulation ~~products.~~for Inall ~~addition,~~or weonly ~~and~~some ~~our~~of ~~partners~~the ~~are~~indications ~~also~~sought ~~subject~~by tous. ~~ongoing~~If ~~DEA~~the ~~regulatory~~FDA ~~obligations,~~disagrees ~~including~~with ~~annual~~the ~~registration~~use ~~renewal,~~of ~~security,~~the ~~record~~Section 505(b)(2) ~~keeping,~~regulatory ~~theft~~pathway ~~and~~for ~~loss~~product ~~reporting~~candidates, ~~periodic~~we ~~inspection~~would ~~and~~need ~~annual~~to ~~quota~~reconsider ~~allotments~~our ~~for~~plans ~~the~~and ~~raw~~might ~~material~~not ~~for~~be ~~commercial~~able ~~production~~to ofobtain ~~our~~approval ~~products.~~for ~~The~~product ~~failure~~candidates toin ~~comply~~a ~~with~~timely ~~these~~or ~~regulations~~cost-efficient ~~could result in~~manner, ~~among~~or ~~other~~at ~~things,~~all. ~~warning~~The ~~letters,~~FDA ~~fines,~~may ~~injunctions,~~also ~~civil~~reject ~~penalties,~~our ~~recall~~future orSection ~~seizure~~505(b)(2) ofsubmissions ~~products,~~and ~~total~~may orrequire ~~partial~~us ~~suspension~~to offile ~~production,~~such ~~non-renewal~~submissions ofunder ~~marketing~~Section ~~applications~~501(b)(1) orof ~~authorizations~~the ~~or criminal prosecution~~FDCA, which could ~~adversely~~be ~~affect~~considerably ~~our~~more ~~business,~~expensive ~~results of operations~~ and ~~financial condition~~time-consuming.

We are subject to risks associated with NDAs submitted under Section 505(b)(2) of the Food, Drug and Cosmetic Act.

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

For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications, known as “Paragraph IV certifications,” that certify any patents listed in the Orange Book publication in respect to any product referenced in the 505(b)(2) application are invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) application. Under the Hatch-Waxman Act, the holder of the NDA which the 505(b)(2) application references may file a patent infringement lawsuit after receiving notice of the Paragraph IV certification. Filing of a patent infringement lawsuit triggers a one-time automatic 30-month stay of the FDA’s ability to approve the 505(b)(2) application. Accordingly, we may invest a significant amount of time and expense in the development of one or more products only to be subject to significant delay and patent litigation before such products may be commercialized, if at all. A Section 505(b)(2) application may also not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. The FDA may also require us to perform one or more additional clinical studies or measurements to support the change from the approved product. The FDA may then approve the new formulation for all or only some of the indications sought by us. The FDA may also reject our future Section 505(b)(2) submissions and may require us to file such submissions under Section 501(b)(1) of the FDCA, which could be considerably more expensive and time consuming.

Risks Related to Our Industry

~~Changes~~We are subject to risks from changes in laws and regulations applicable to, and increased scrutiny and investigations of, the pharmaceutical industry, including the opioid market, ~~may~~which can adversely affect our business, financial condition and results of operations.

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

~~For~~In ~~instance~~addition, various federal and state governmental entities, including the U.S. Department of Justice (DOJ) and a number of state attorneys general, have launched investigations into the marketing and ~~local~~sales ~~governments~~practices of pharmaceutical companies that market or have ~~for~~marketed opioid and non-opioid pain medications, including us. For instance, we have received subpoenas or civil investigative demands from the ~~last~~DOJ, several ~~years~~state ~~given~~attorneys ~~significant~~general, ~~attention~~the toNew ~~the~~York ~~public~~Department ~~health~~of ~~issue~~Financial Services and other state regulators seeking documentation and information in connection with our historical sales and marketing of opioid ~~abuse~~products. In ~~2016,~~We also received a subpoena from the ~~Centers~~State ~~for~~of ~~Disease~~California ~~Control~~Department ~~and~~of ~~Prevention~~Insurance (~~CDC~~CDI) ~~issued~~seeking ~~national,~~information ~~non-binding~~relating ~~guidelines~~to our historical sales and marketing of Gralise. There has been recent regulatory attention focused on gabapentin as a result of a perceived risk of the ~~prescribing~~compound being used as a potentiator for opioid abuse. Although gabapentin is neither an opioid nor classified as a controlled substance by the DEA, as a result of ~~opioids~~the perceived risks relating to substance abuse, ~~providing~~several ~~recommended~~states ~~considerations~~have scheduled gabapentin as a controlled substance. We have also received notice from the FDA that it has requested that all companies that hold an NDA for ~~primary~~gabapentanoids ~~care~~conduct ~~providers~~two clinical trials to assess gabapentin’s abuse liability. One clinical trial is intended to address the abuse potential of gabapentin alone. The other clinical trial is intended to evaluate gabapentin’s abuse potential when ~~prescribing~~taken ~~opioids~~in combination with an opioid drug. Depending on the results of these studies, ~~including~~additional ~~specific~~safety ~~considerations~~labeling, the implementation of a REMS protocol and/or ~~cautionary~~scheduling ~~information~~of ~~about~~gabapentanoids, ~~opioid~~as ~~dosage~~a ~~increases~~class or by formulation type, could be mandated by the FDA which, in turn, could result in increased expenses or have a material adverse impact on either the commercial prospects of our products or our ability or our partners’ ability to commercialize our products. Continued changes in regulations and ~~morphine~~legislation applicable to gabapentin could have a material adverse impact on the commercial prospects of Gralise which could, in turn, have a material adverse effect on Alvogen’s sales and our business, financial condition and results of operations.

Governmental regulators could take measures that could have a negative effect on our business and our products. Any negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to our other products could adversely affect our business, results of operations, and financial condition.

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

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

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~~milligram~~Pharmaceutical ~~equivalents~~marketing ~~(MME). A~~is ~~number~~subject ~~of third party payers have adopted or are considering adopting some or all of these CDC guidelines~~ to ~~limit~~substantial ~~access~~regulation to higher doses of opioids. Industry associations and trade groups are also changing or considering changes to guidelines relevant to opioid prescriptions along similar lines. In addition, a number of state legislatures across the country have enacted legislation with some type of limit, guidance, or requirement related to opioid prescribing, including to limit the duration and quantity of initial prescriptions of opioids and to mandate the use by prescribers of prescription drug databases. At the federal level, the White House Office of National Drug Control Policy (ONDCP) and the National Institutes of Health (NIH) are coordinating efforts between the FDA, the DEA, the U.S. Department of Health and Human Services, and pharmaceutical industry groups to research and develop effective non-opioid pain relievers. In July 2018, the DEA issued a final rule, “Controlled Substances Quotas,” to strengthen the process for setting controls over diversion of controlled substances and to make other improvements in the quota management regulatory system for production, manufacturing, and procurement of controlled substances. The DEA also continues to increase its efforts to hold manufacturers, distributors, prescribers, and pharmacies accountable through various enforcement actions as well as the implementation of compliance practices for controlled substances. The DEA also recently proposed reducing the quota for controlled substances to be manufactured in the U.S. ~~in 2018. Further, the FDA has updated the “black-box” warnings on immediate release opioids highlighting the risk of misuse, abuse, addiction, overdose,~~ and ~~death~~any infailure ~~conjunction~~by ~~with~~us ~~the~~or ~~implementation~~our ofcommercial ~~a Risk Evaluation~~ and ~~Mitigation~~collaborative ~~Strategies~~partners ~~(REMS) for these same products. The FDA has also emphasized that it will continue~~ to ~~evaluate~~comply ~~patient risk associated~~ with ~~exposure~~applicable tostatutes opioids, and that it will work to reduce the number, dosages and the duration of opioid prescriptions, where appropriate. In October 2018 Congress approved H.R. 6, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act, and President Trump signed such legislation into law. These regulatory actions, including the SUPPORT Act and other similar legislation or ~~policy~~regulations ~~initiatives,~~can ~~may~~ adversely ~~impact~~affect ~~the~~our ~~commercialization of opioids generally, including NUCYNTA and NUCYNTA ER~~business.

InAll ~~addition,~~marketing ~~various~~activities ~~federal~~of ~~and~~Alvogen ~~state~~associated ~~governmental~~with ~~entities~~Gralise, ~~including~~and ~~the~~our ~~DOJ~~current ~~and~~marketing aactivities ~~number~~associated ofwith ~~state~~CAMBIA ~~attorneys~~and ~~general~~Zipsor, ~~have~~as ~~launched~~well ~~investigations~~as ~~into the~~ marketing ~~and~~activities ~~sales~~related ~~practices~~to ofany ~~pharmaceutical~~other ~~companies~~products that ~~market~~we may acquire, or ~~have~~for ~~marketed~~which ~~opioid~~we ~~and~~or ~~non-opioid~~our ~~pain~~collaborative ~~medications,~~partners ~~including~~obtain ~~us. For~~regulatory ~~instance~~approval, weare ~~have~~and ~~received~~will ~~subpoenas~~be orsubject ~~civil~~to ~~investigative~~numerous ~~demands~~federal ~~from~~and state laws governing the ~~DOJ~~marketing and ~~several~~promotion ~~State~~of ~~Attorneys~~pharmaceutical ~~General~~products. ~~and~~The ~~other~~FDA ~~state~~regulates ~~regulators~~post-approval ~~seeking~~promotional ~~documentation~~labeling and ~~information~~advertising into ~~connection~~ensure ~~with~~that ~~our~~they ~~historical~~conform ~~sales~~to statutory and ~~marketing~~regulatory ~~of opioid products~~requirements. We ~~also~~In ~~received~~addition ato ~~subpoena~~FDA ~~from~~restrictions, the ~~State~~marketing of ~~California~~prescription ~~Department~~drugs ofis ~~Insurance~~subject ~~seeking~~to ~~information~~laws ~~relating~~and toregulations ~~our~~prohibiting ~~historical~~fraud ~~sales~~ and ~~marketing~~abuse ofunder ~~Gralise~~government healthcare programs. ~~There~~ ~~has~~For ~~been~~example, ~~recent~~the ~~regulatory~~federal ~~attention~~healthcare ~~focused~~program onanti-kickback ~~gabapentin~~statute asprohibits agiving ~~result~~things of avalue ~~perceived~~to ~~risk~~induce the prescribing or purchase of ~~the~~products ~~compound~~that ~~being~~are ~~used~~reimbursed asby afederal ~~potentiator~~healthcare ~~for~~programs, ~~opioid~~such ~~abuse.~~as ~~Although~~Medicare ~~gabapentin~~and isMedicaid. ~~neither~~In anaddition, ~~opioid~~federal ~~nor~~false ~~classified~~claims aslaws aprohibit ~~controlled~~any ~~substance~~person byfrom ~~the~~knowingly ~~DEA~~presenting, asor causing to be presented, a ~~result~~false ofclaim for payment to the ~~perceived~~federal ~~risks~~government. ~~relating~~Under tothese ~~opioid~~laws, ~~abuse~~in recent years, ~~several~~the ~~states~~federal ~~have~~government ~~scheduled~~has ~~gabapentin~~brought asclaims aagainst ~~controlled~~drug ~~substance.~~manufacturers ~~Continued~~alleging ~~changes~~that incertain ~~regulations~~marketing ~~and~~activities ~~legislation~~caused ~~applicable~~false claims for prescription drugs to ~~gabapentin~~be ~~could~~submitted to federal programs. Many states have asimilar ~~material~~statutes ~~adverse~~or ~~impact~~regulations ~~the~~that ~~commercial~~apply ~~prospects~~to ofitems ~~Gralise~~and ~~which~~services ~~could,~~reimbursed inunder ~~turn,~~Medicaid ~~have~~and aother ~~material~~state ~~adverse~~programs, ~~effect~~and, onin ~~our~~some ~~business~~states, ~~financial~~such ~~condition~~statutes ~~and~~or ~~results~~regulations apply regardless of ~~operations~~the payer.

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

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

In recent years, there has been increased public attention on the public health issue of opioid abuse. The ability of drug abusers to discover previously unknown ways to abuse and misuse opioid products; public inquiries and governmental investigations into prescription drug abuse; litigation and heightened regulatory activity regarding the sales, marketing, distribution or storage of opioid products, among other things, could cause additional unfavorable publicity regarding the use and misuse of opioids, which could have a material adverse effect on opioid products, the reputation of the opioid manufacturers and the ability of our commercialization partner to successfully commercialize NUCYNTA and NUCYNTA ER.

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Such negative publicity could reduce the potential size of the market for NUCYNTA and NUCYNTA ER, and decrease the revenues Collegium is able to generate from their sale, which in turn would adversely affect our financial condition and results of operations. Additionally, such increased scrutiny of opioids generally, whether focused on NUCYNTA and NUCYNTA ER or otherwise, could have the effect of negatively impacting relationships with healthcare providers and other members of the healthcare community, reducing the overall market for opioids or reducing the prescribing and use of NUCYNTA and NUCYNTA ER.

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

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

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

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

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

~~Health~~Healthcare ~~care~~ reform ~~could~~can increase our expenses and adversely affect the commercial success of our products.

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

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~~also~~significantly ~~includes~~reduced ~~provisions known as the Physician Payments Sunshine Act~~prices), which require manufacturers of drugs, biologics, devices and medical supplies covered under Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with health care professionals. Failure to report appropriate data may result in civil or criminal fines and/or penalties. These and other aspects of the ACA, including regulations that may be imposed in connection with the implementation of the ACA, such as the 340B Program, could increase our expenses and adversely affect our ability to successfully commercialize our products and product candidates.

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

Risks Related to the Historical Commercialization of Opioids

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

As a result of the greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers generally by federal, state and local regulatory and governmental agencies, as well as increased legal action brought by state and local governmental entities and private parties. For example, we are currently named as a defendant, along with numerous other manufacturers and distributors of opioid drugs, in multiple lawsuits alleging common-law and statutory causes of action for alleged misleading or otherwise improper marketing and promotion of opioid drugs. Such litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 1211. Commitments and Contingencies.”

WeIn March 2017, we received a letter from ~~Senator~~Sen. Claire McCaskill (D-MO), the then-Ranking Member on the U.S. Senate Committee on Homeland Security and Governmental Affairs, requesting certain information regarding our historical commercialization of opioid products. We voluntarily furnished information responsive to Sen. McCaskill’s request. We have also received subpoenas or civil investigative demands focused on historical promotion and sales of Lazanda, NUCYNTA, and NUCYNTA ER from various ~~State~~state ~~Attorneys~~attorneys ~~General~~general seeking documents and information regarding our historical sales and marketing of opioid products. In addition, the ~~State~~CDI ~~of California Department of Insurance~~ has issued a subpoena to us seeking information relating to our historical sales and marketing of Lazanda. The ~~State~~CDI ~~of California Department of Insurance~~ subpoena also seeks information on Gralise, a non-opioid product inwhich ~~our~~we ~~portfolio~~recently divested to Alvogen. We ~~are~~have ~~cooperating~~also ~~with~~received ~~each~~subpoenas offrom the ~~foregoing~~DOJ ~~states~~ and the ~~State~~New ofYork ~~California~~ Department of ~~Insurance~~Financial inServices ~~their investigations. We have received subpoenas from the DOJ~~ seeking documents and information regarding our historical sales and marketing of opioid products. We ~~are cooperating with the DOJ in its investigations.~~ We also from time to time receive and comply with subpoenas from governmental authorities related to investigations primarily ~~directed~~focused aton third parties, including ~~health~~healthcare ~~care~~ practitioners,. ~~pursuant~~We toare ~~which~~cooperating ~~our~~with ~~records~~the ~~related~~foregoing togovernmental ~~agreements~~investigations ~~with~~ and ~~payments made to those third parties, among other items, are produced~~inquiries. These matters are described in “Item 8. Financial Statements and Supplementary Data - Note 1211. Commitments and Contingencies.”

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

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investigation, inquiry or lawsuit relating to us, the costs and expenses associated therewith, or any assertion, claim or finding of wrongdoing by us, could:


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


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

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


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

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

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

~~Furthermore,~~We ~~governmental~~face ~~regulators~~risks ~~could~~relating take measures that could have a negative effect on our business and our products. For example, in 2017 Endo Pharmaceuticals, Inc. voluntarily withdrew, at the FDA’s request, OPANA ER from the market due to ~~the FDA’s view that the risks associated with the use of the~~ product ~~outweighed~~liability ~~the~~losses potential benefits. Any negative regulatory request or action taken by a regulatory agency, including the FDA, with respect to NUCYNTA or NUCYNTA ER would adversely affect Collegium’s ability to commercialize NUCYNTA and ~~NUCYNTA~~other ERlitigation ~~and~~liability infor ~~turn~~which ~~adversely~~we ~~affect~~may ~~our~~be ~~business,~~unable ~~results of operations and financial condition. Further, the FDA is in the process of issuing guidance~~ to ~~encourage~~maintain the development of nonaddictive alternatives to opioid pain medications. Such efforts intended to spur the development of non-opioid medications for chronic pain could negatively impact the commercialization of opioids generally, including NUCYNTA and NUCYNTA ER. Likewise, any negative regulatory request or ~~action~~obtain ~~taken~~adequate ~~by a regulatory agency, including the FDA, with respect to our other products could adversely affect our business, results of operations, and financial condition~~protection.

We are or may ~~incur~~be involved in various legal proceedings, lawsuits and certain government inquiries and investigations, including with respect to, but not limited to, patent infringement, product liability, ~~losses~~personal injury, antitrust matters, securities class action lawsuits, breach of contract, Medicare and Medicaid reimbursement claims, opioid-related matters, promotional practices and compliance with laws relating to the manufacture and sale of controlled substances. For example, we, along with other ~~litigation~~opioid ~~liability~~manufacturers ~~for~~and, ~~which~~often, distributors, have been named in lawsuits related to the manufacturing, distribution, marketing and promotion of opioids. In addition, we ~~may~~have bealso ~~unable~~received various subpoenas and requests for information related to ~~maintain~~the distribution, marketing and sale of our opioid products. Moreover, our primary product liability insurer has sought a declaratory judgment that opioid litigation claims noticed by us are not covered by our policies with such insurer. Such litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 11. Commitments and Contingencies.” If any of these legal proceedings, inquiries or ~~obtain~~investigations ~~adequate~~were ~~protection~~to result in an adverse outcome, the impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

We are or may be involved in various legal proceedings, lawsuits and certain government inquiries and investigations, including with respect to, but not limited to, patent infringement, product liability, personal injury, antitrust matters, securities class action lawsuits, breach of contract, Medicare and Medicaid reimbursement claims, opioid-related matters, promotional practices and compliance with laws relating to the manufacture and sale of controlled substances. For example, we, along with other opioid manufacturers and, often, distributors, have been named in lawsuits related to the manufacturing, distribution, marketing and promotion of opioids. In addition, we have also received various subpoenas and requests for information related to the distribution, marketing and sale of our opioid products. Moreover, our primary product liability insurer has sought a declaratory judgment that opioid litigation claims noticed by us are not covered by our policies with such insurer. Such litigation and related matters are described in “Item 8. Financial Statements and Supplementary Data - Note 12. Commitments and Contingencies.” If any of these legal proceedings, inquiries or investigations were to result in an adverse outcome, the impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

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


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


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


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


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

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

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NUCYNTA and NUCYNTA ER, respectively, our business, results of operations and financial condition could be adversely affected.

Risks Related to Our Intellectual Property

We ~~may~~are benot ~~unable~~always able to protect our intellectual property and ~~may~~are besubject ~~liable~~to risks from liability for infringing the intellectual property of others.

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

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

From time to time, we may become aware of activities by third parties that may infringe our patents. Infringement of our patents by others may reduce our market shares (if a related product is approved) and, consequently, our potential future revenues and adversely affect our patent rights if we do not take appropriate enforcement action. We may need to engage in litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. For instance, we have previously been engaged in ANDA litigation involving NUCYNTA, NUCYNTA ER and NUCYNTA oral solution as well as Gralise and Zipsor. It is possible our issued or licensed patents may not be held valid by a court of competent jurisdiction or the PTAB. Whether or not the outcome of litigation or the PTAB proceeding is favorable to us, the litigation and the proceedings may take significant time, may be expensive and may divert management’s attention from other business concerns. We may also be required to participate in derivation proceedings or other post-grant proceedings declared by the U.S. Patent and Trademark Office for the purposes of, respectively, determining the priority of inventions in connection with our patent applications or determining validity of claims in our issued patents. Adverse determinations in litigation or proceedings at the U.S. Patent and Trademark Office could adversely affect our business, results of operations and financial condition and could require us to seek licenses which may not be available on commercially reasonable terms, or at all, or subject us to significant liabilities to third parties. If we need but cannot obtain a license, we may be prevented from marketing the affected product.26

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

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

Settlements to ANDA litigation can be challenged and have the potential to lead to significant damage awards.

In circumstances where we settle patent litigation claims asserted against generic drug companies, the terms of these settlements have the potential to generate new litigation. For example, we were recently named as a co-defendant in a putative class action brought by certain direct and indirect purchasers of Glumetza (metformin), which was previously the subject of ANDA patent litigation. The plaintiffs in this action allege that a term of the settlement agreement violated antitrust laws and thus subsequently led to higher prices for Glumetza. While we believe we have substantive defenses to this action, there can be no assurance that we will prevail in this action. To the extent that we or our co-defendants are found to have acted improperly, we could be jointly and severally liable for a significant damages award, which could potentially exceed our ability to pay. Entry into other patent litigation settlement agreements in the future subjects us to additional potential claims challenging these settlements under antitrust laws or other novel theories.

Risks Related to Our Financial Position

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

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

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

We have incurred significant indebtedness under the ~~senior~~convertible ~~secured~~ notes we issued in ~~April~~September ~~2015~~2014 ~~(the Senior Notes)~~ and ~~the~~August ~~convertible~~2019 ~~notes we issued in September 2014~~ (collectively, the Convertible Notes). Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the Convertible Notes, the Senior Notes and any additional debt obligations we may incur depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. Further, our results of operations may cause us to fail to comply with the financial covenants contained in the Note Purchase Agreement described in “Item 8. Financial Statements and Supplementary Data - Note 10. Debt,” which event of default could result in all of our debt becoming immediately due and payable. If we are unable to generate sufficient cash flow or if our results of operations cause us to fail to comply with our financial covenants, we may be required to take one or more actions, including refinancing our debt, significantly reducing expenses, renegotiating our debt covenants, restructuring our debt, selling assets or obtaining additional capital, each of which may be on terms that may be onerous, highly dilutive or disruptive to our business. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on commercially reasonable or acceptable terms, which could result in a default on our obligations, including the Convertible Notes and the Senior Notes.

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refinance the Convertible Notes and any additional debt obligations we may incur depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and to make necessary capital expenditures. If we are unable to generate sufficient cash flow or if our results of operations cause us to fail to comply with our financial covenants, we may be required to take one or more actions, including refinancing our debt, significantly reducing expenses, renegotiating our debt covenants, restructuring our debt, selling assets or obtaining additional capital, each of which may be on terms that may be onerous, highly dilutive or disruptive to our business. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on commercially reasonable or acceptable terms, which could result in a default on our obligations, including the Convertible Notes.

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

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

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

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


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

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

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


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

• prevent us from raising funds necessary to repurchase the Convertible Notes in the event we are required to do so following a “fundamental change,” as specified in the ~~indenture~~indentures governing the Convertible Notes, ~~to repurchase the Senior Notes in the event we are required to do so following a “major transaction”~~ or ~~as required in the event that the principal amount outstanding under the Convertible Notes as of March 31, 2021 is greater than $100.0 million, as specified in the Note Purchase Agreement or~~ to settle conversions of the Convertible Notes in cash;


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


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


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

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

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

29An important element of our business strategy is to actively seek to acquire products or companies and to in-license or seek co-promotion rights to additional products. For example, in the past we have acquired NUCYNTA, NUCYNTA ER (both of which were subsequently divested to Collegium in February 2020), CAMBIA, and Zipsor, amongst other acquisitions. We cannot be certain that we will be able to successfully identify, pursue and complete any further acquisitions or whether we would be able to successfully integrate or develop any acquired business, product or technology or retain any key employees. If we are unable to enhance and broaden our product offerings, our business and prospects will be limited.

Strategic transactions that fail to achieve the anticipated results and synergies will cause our business to suffer.

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~~Since~~We ~~June~~sometimes ~~2012,~~seek weto ~~have~~engage ~~acquired~~in ~~NUCYNTA~~strategic transactions with third parties, ~~NUCYNTA~~such ERas product or company acquisitions, ~~CAMBIA~~strategic partnerships, ~~and~~joint ~~Zipsor~~ventures, ~~exclusively~~divestitures or business combinations. We may face significant competition in~~-licensed~~ ~~the~~seeking ~~right~~potential tostrategic ~~develop~~partners and ~~commercialize cebranopadol~~transactions, and ~~in-licensed~~ the ~~right~~negotiation toprocess ~~market~~for ~~long-acting~~acquiring ~~cosyntropin.~~any Anproduct ~~important~~or ~~element~~engaging ofin ~~our~~strategic ~~business~~transactions ~~strategy~~can isbe totime-consuming ~~actively~~and ~~seek~~complex. toEngaging ~~acquire~~in ~~products~~strategic ortransactions, ~~companies~~such ~~and~~as toour acquisition in~~-license~~ or2015 ~~seek~~of ~~co-promotion~~the rights to ~~additional~~NUCYNTA ~~products.~~and WeNUCYNTA ~~cannot~~ER, beour ~~certain~~completion ~~that~~in we2018 ~~will~~of bethe ~~able~~commercialization toarrangement ~~successfully~~covering ~~identify,~~NUCYNTA ~~pursue~~ and ~~complete~~NUCYNTA ~~any~~ER ~~further~~with ~~acquisitions~~Collegium, orand ~~whether~~our wedivestiture ~~would~~of beNUCYNTA ~~able~~and NUCYNTA ER to ~~successfully~~Collegium ~~integrate~~in or2020, ~~develop~~may ~~any~~require ~~acquired~~us ~~business,~~to ~~product~~incur ornon-recurring ~~technology~~and orother ~~retain~~charges, ~~any~~increase ~~key~~our ~~employees.~~near- Ifand welong-term ~~are~~expenditures, ~~unable~~pose tointegration ~~enhance~~challenges and ~~broaden~~fail ~~our~~to ~~product~~achieve ~~offerings,~~the anticipated results or synergies or distract our ~~business~~management and ~~prospects~~business, ~~will~~which bemay ~~limited~~harm our business.

IfAs part of an effort to acquire a product or company or to enter into other strategic transactions, we ~~engage~~conduct business, legal and financial due diligence with the goal of identifying, evaluating and assessing material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining, evaluating and accurately assessing all such risks and, as a result, might not realize the intended advantages of the transaction. We may also assume liabilities and legal risks in connection with a transaction, including those relating to activities of the seller prior to the consummation of the transaction and contracts that we assume. Failure to realize the expected benefits from acquisitions or strategic transactions that ~~fail~~we may consummate, or that we have completed, such as the acquisition in 2015 of the U.S. rights to ~~achieve~~NUCYNTA and NUCYNTA ER, the ~~anticipated~~commercialization ~~results~~arrangement covering NUCYNTA and ~~synergies~~NUCYNTA ER with Collegium, and our divestiture of NUCYNTA and NUCYNTA ER to Collegium in 2020, whether as a result of identified or unidentified risks, integration difficulties, regulatory setbacks, governmental investigations, independent actions of or financial position of our collaborative partners, litigation or other events, could adversely affect our business, ~~will~~results ~~suffer~~of operations and financial condition.

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

AsIntegrating ~~part~~any ofbusiness, ~~an effort to acquire a~~ product or ~~company~~technology ~~or to enter into other strategic transactions,~~ we ~~conduct~~acquire ~~business,~~is ~~legal~~expensive and ~~financial~~time-consuming ~~due~~and ~~diligence~~can ~~with~~disrupt ~~the goal of identifying, evaluating~~ and ~~assessing~~adversely ~~material~~affect ~~risks involved in the transaction. Despite~~ our ~~efforts~~ongoing business, weincluding ~~ultimately~~product ~~may be unsuccessful in ascertaining~~sales, ~~evaluating~~ and ~~accurately~~distract ~~assessing~~our ~~all such risks and, as a result, might not realize the intended advantages of the transaction~~management. WeOur ~~may~~ability ~~also~~to ~~assume~~successfully ~~liabilities~~integrate ~~and~~any ~~legal risks in connection with a transaction~~business, ~~including~~product ~~those relating to activities of the seller prior to the consummation of the transaction and contracts that we assume. Failure to realize the expected benefits from acquisitions~~ or ~~strategic~~technology ~~transactions that~~ we ~~may~~acquire ~~consummate,~~depends oron that we have completed, such as the acquisition in 2015 of the U.S. rights to NUCYNTA and NUCYNTA ER, and the recently completed commercialization arrangement covering NUCYNTA and NUCYNTA ER with Collegium, whether as a ~~result~~number of ~~identified or unidentified risks~~factors, ~~integration difficulties~~including, ~~regulatory~~but ~~setbacks,~~not ~~governmental~~limited ~~investigations~~to, ~~litigation or other events, could adversely affect~~ our ~~business,~~ability ~~results of operations and financial condition.~~to:

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

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


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


•	maintain and increase sales of our existing products;


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


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


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


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

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


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

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

30We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash, or to repurchase the Convertible Notes upon a fundamental change.

Holders of the Convertible Notes will have the right to require us to repurchase all or a portion of their Convertible Notes upon the occurrence of certain events, including events deemed to be a “fundamental change,” at a repurchase price equal to 100% of the principal amount of the outstanding Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to

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~~Our~~settle ~~existing~~such ~~capital~~conversion ~~resources~~(other ~~may~~than ~~not~~paying becash ~~sufficient~~in tolieu ~~fund~~of ~~our~~delivering ~~future~~any ~~operations~~fractional orshare), ~~product~~we ~~acquisitions~~will ~~and~~be ~~strategic~~required ~~transactions~~to ~~that~~make wecash ~~may~~payments ~~pursue~~in respect of the Convertible Notes being converted.

WeHowever, ~~fund~~we ~~our~~may ~~operations~~not ~~primarily~~have ~~through~~enough ~~revenues~~available ~~from~~cash ~~product~~or ~~sales~~be ~~and~~able doto ~~not~~obtain ~~have~~financing ~~any~~at ~~committed~~the ~~sources~~time ofwe ~~capital.~~are Torequired ~~the~~to ~~extent~~make ~~that~~repurchases ~~our~~of ~~existing~~Convertible ~~capital~~Notes ~~resources~~or ~~and~~pay ~~revenues~~cash ~~from~~with ~~ongoing~~respect ~~operations~~to ~~are~~Convertible ~~insufficient~~Notes tobeing ~~fund~~converted. In addition, our ~~future~~ability ~~operations,~~to repurchase or ~~product~~to ~~acquisitions~~pay ~~and~~cash ~~strategic~~upon ~~transactions~~conversion ~~that~~of wethe Convertible Notes may ~~pursue~~be limited by law, weregulatory ~~will~~authority ~~have~~or toagreements ~~raise~~governing ~~additional~~our ~~funds~~future ~~through~~indebtedness. Moreover, the ~~sale~~occurrence of ~~our~~a ~~equity~~fundamental ~~securities,~~change ~~through~~under ~~additional~~the ~~debt~~indentures ~~financing,~~governing ~~from~~the ~~development~~Convertible ~~and~~Notes ~~licensing~~could ~~arrangements~~constitute oran ~~from~~event ~~the sale~~ of ~~assets.~~default Weunder ~~may~~the beindentures ~~unable~~governing tothe ~~raise~~Convertible ~~such~~Notes ~~additional~~and ~~capital~~any onagreements ~~favorable~~that ~~terms,~~may orgovern atany ~~all~~future indebtedness. IfFollowing wean ~~raise~~event ~~additional~~of ~~capital~~default, byif ~~selling~~the payment of our ~~equity~~outstanding orindebtedness ~~convertible~~were ~~debt~~to ~~securities,~~be ~~the~~accelerated ~~issuance~~after ofany ~~such~~applicable ~~securities~~notice ~~could~~or ~~result~~grace inperiods, ~~dilution~~we ofmay ~~our~~not ~~shareholders’~~have ~~equity~~sufficient ~~positions~~funds to repay such indebtedness.

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash, to repurchase the Convertible Notes upon a fundamental change or to repurchase the Senior Notes upon a major transaction put or as required in the event that the principal amount outstanding under the Convertible Notes as of March 31, 2021 is greater than $100.0 million.

Furthermore, holders of the Senior Notes will have the right to require us to repurchase all of their Senior Notes (i) if the principal amount outstanding under the Convertible Notes as of March 31, 2021 is greater than $100.0 million, at a repurchase price equal to 100% of the principal amount of the outstanding Senior Notes to be repurchased, plus accrued and unpaid interest, if any, or (ii) upon the occurrence of certain events deemed to be a “major transaction” at a repurchase price equal to: (a) 100% of the principal amount of the outstanding Senior Notes to be repurchased, plus (b) accrued and unpaid interest, if any, plus (c) a prepayment premium, which may be substantial.

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

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

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

31The market price of our common stock historically has been volatile. Our results of operations have and may continue to fluctuate and affect our stock price.

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

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

• the degree of commercial success and market acceptance of ~~NUCYNTA~~Gralise, CAMBIA and ~~NUCYNTA ER achieved by Collegium~~Zipsor;

• the ~~degree~~outcome of ~~commercial~~our ~~success~~opioid-related investigations, our opioid-related litigation brought by state and ~~market~~local ~~acceptance~~governmental ofentities ~~Gralise~~and private parties, ~~CAMBIA~~and our insurance, antitrust and ~~Zipsor~~other ~~achieved~~litigation, and the costs and expenses associated therewith;

• ~~the~~filings ~~current~~and other regulatory or governmental actions, investigations or proceedings related to our products and ~~future~~product ~~market~~candidates ~~conditions~~and ~~for~~those ~~short-acting~~of our commercialization and ~~long-acting~~collaborative ~~opioids~~partners;

• ~~filings~~developments ~~and~~concerning ~~other~~proprietary ~~regulatory~~rights, orincluding ~~governmental actions~~patents, ~~investigations~~infringement orallegations, ~~proceedings~~inter ~~related~~partes toreview ~~our~~proceedings ~~products~~ and ~~product~~litigation ~~candidate and those of our commercialization and collaborative partners~~matters;

• the outcome of the appeal of the court’s favorable ruling in our patent infringement litigation against the filers of ANDAs for NUCYNTA and NUCYNTA ER;

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

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

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


•	legal and regulatory developments in the U.S.;


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


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

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


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

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

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


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

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


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


•	adoption of new technologies by us or our competitors;

~~• the outcome of our opioid-related investigations and litigation;~~30

•Table ~~the outcome and impact~~ of ~~a proxy contest initiated by an activist shareholder;~~Contents


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


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


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


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

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

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

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

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

To date, we have recorded revenues from product sales, license fees, royalties, collaborative research and development arrangements and feasibility studies. In ~~2017~~2019, ~~2016~~2017 and ~~2015~~2016 we incurred net losses of $~~102~~217.52 million., $88102.75 million and $7588.7 million, respectively. We may continue to incur operating losses in future years. Any such losses may have an adverse impact on our total assets, shareholders’ equity and working capital.

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

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

In performing our impairment tests, which assess the recoverability of our assets, we utilize our future projections of cash flows. Projections of future cash flows are inherently subjective and reflect assumptions that may or may not ultimately be realized. Significant assumptions utilized in our projections include, but are not limited to, our evaluation of the market opportunity for our products, the current and future competitive landscape and resulting impacts to product pricing, future regulatory actions, planned strategic initiatives and the realization of benefits associated with our existing patents. Given the inherent subjectivity and uncertainty in projections, we could experience significant unfavorable variances in future periods or revise our projections downward. This would result in an increased risk that our ~~intangible~~long-lived assets may be impaired. IfFor example, during the year ended December 31, 2019, the Company recognized an impairment ~~were~~loss ~~recognized~~of approximately $189.8 million related to the NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of December 31, 2019. The Company determined that the fair value was $375.0 million as of December 31, 2019, which was lower than the carrying value of $564.8 million. This impairment loss is described in more detail in “Item 8, Note 6. Intangible Assets” of this Annual Report on Form 10-K. This impairment and any future impairments could have a material adverse effect on our financial condition and results of operations.

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

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

~~Our product revenues have historically been lower in the first quarter of the year as compared to the fourth quarter of the preceding year, which may cause our stock price to decline.~~31

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

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

Many health insurance plans and government programs reset annual limits on deductibles and out-of-pocket costs at the beginning of each calendar year and require participants to pay for substantially all of the costs of medical services and

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~~prescription~~paying ~~drug~~us ~~products~~or ~~until~~our ~~such~~commercialization ~~deductibles~~partners ~~and~~on ~~annual out-of-pocket cost limits are met. In addition, enrollment in high-deductible health insurance plans has increased significantly in recent years. As~~ a ~~result~~timely ~~of these factors~~basis, ~~patients may delay filling~~ or ~~refilling~~if ~~prescriptions~~any ~~for our products or substitute less expensive generic products until such deductibles and annual out-~~of~~-pocket~~ ~~cost~~these ~~limits~~distributors ~~are~~negotiated ~~met.~~lower ~~Any~~pricing ~~reduction in the demand for our products~~terms, ~~including~~it ~~those~~could ~~marketed~~have ~~by our commercialization partners as~~ a ~~result~~material ofadverse ~~the~~effect ~~foregoing~~on ~~factors~~our orcompetitive ~~otherwise~~position, ~~could adversely affect our~~ business, ~~operating~~financial condition, results of operations and ~~financial~~cash ~~condition~~flows.

~~Changes~~Our inproduct ~~fair~~revenues ~~value~~have oftypically ~~contingent~~been ~~consideration~~lower ~~assumed~~in asthe ~~part~~first quarter of ~~our~~the ~~acquisitions~~year ~~could~~as ~~adversely~~compared ~~affect~~to ~~our~~the ~~results~~fourth quarter of ~~operations~~the preceding year.

~~Contingent~~Our ~~consideration~~product ~~obligations~~revenues ~~arise~~have ~~from~~typically ~~the~~been ~~Zipsor~~lower ~~and~~in ~~CAMBIA acquisitions and relate to~~ the ~~potential~~first ~~future~~quarter ~~contingent~~of ~~milestone payments and royalties payable under~~ the ~~respective~~year ~~agreements.~~as ~~The~~compared ~~contingent~~to ~~consideration is initially recognized at its fair value on~~ the ~~acquisition~~fourth ~~date~~quarter ~~and~~of ~~is re-measured to fair value at each reporting date until~~ the ~~contingency~~preceding ~~is resolved with changes in fair value recognized in earnings~~year. ~~The~~We ~~estimates~~believe ofthis ~~fair~~arises ~~values~~primarily ~~for the contingent consideration contain uncertainties~~ as ita ~~involves~~result ~~assumptions~~of ~~about~~wholesalers’ ~~the~~reductions ~~probability~~of ~~assigned~~inventory toof ~~the~~our ~~potential~~products ~~milestones and royalties being achieved and the discount rate. Significant judgment is employed~~ in ~~determining these assumptions as of~~ the ~~acquisition~~first ~~date~~quarter and ~~for~~annual ~~each~~changes ~~subsequent~~in ~~period.~~health ~~Updates~~insurance toplans ~~assumptions~~that ~~could~~occur ~~have~~at athe ~~significant~~beginning ~~impact on our results~~ of ~~operations~~the incalendar ~~any given period~~year.

~~The~~Our ~~accounting~~wholesalers ~~method~~typically ~~for~~end ~~convertible~~the ~~debt~~calendar ~~securities~~year ~~that~~with ~~may~~higher belevels ~~settled~~of ininventory ~~cash~~of our products than at the end of the first quarter of the following year. As a result, in such asfirst ~~the~~quarters, ~~Convertible~~net ~~Notes~~sales ~~could~~are typically lower than would otherwise have been the case as a result of the reduction of product inventory at our wholesalers. Any material ~~effect~~reduction onby our ~~reported~~wholesalers ~~financial~~of their inventory of our products in the first quarter of any calendar year as compared to the fourth quarter of the preceding calendar year can adversely affect our operating results and can cause our stock price to decline.

InMany ~~May~~health ~~2008,~~insurance ~~FASB~~plans ~~issued~~and ~~FASB~~government ~~Staff~~programs ~~Position~~reset ~~No.~~annual ~~APB~~limits ~~14-1,~~on ~~Accounting~~deductibles for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and ~~Other Options (ASC 470~~out-~~20). Under ASC 470~~of-~~20,~~pocket ancosts ~~entity~~at ~~must~~the ~~separately~~beginning ~~account~~of ~~for~~each ~~the~~calendar ~~liability~~year and ~~equity~~require ~~components~~participants ofto ~~the~~pay ~~convertible~~for ~~debt~~substantially ~~instruments~~all ~~(such~~of as the ~~Convertible~~costs ~~Notes)~~of ~~that~~medical ~~may~~services beand ~~settled~~prescription ~~entirely~~drug orproducts ~~partially~~until insuch ~~cash~~deductibles ~~upon~~and ~~conversion~~annual ~~in a manner that reflects the issuer’s economic interest cost. The effect~~ out-of ~~ASC 470~~-20pocket oncost ~~the~~limits ~~accounting~~are ~~for~~met. ~~the~~In ~~Convertible~~addition, ~~Notes~~enrollment ~~is that the equity component is required to be included~~ in ~~the additional paid~~high-indeductible ~~capital~~health ~~within~~insurance ~~shareholders’~~plans ~~equity~~has onincreased ~~our~~significantly ~~consolidated~~in ~~balance~~recent ~~sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Convertible Notes~~years. As a result, weof ~~have~~these ~~been~~factors, ~~required~~patients tomay ~~record~~delay afilling ~~greater~~or ~~amount~~refilling ofprescriptions ~~non-cash~~for ~~interest~~our ~~expense~~products asor asubstitute ~~result~~less ofexpensive ~~the~~generic ~~accretion~~products ofuntil ~~the~~such ~~discounted~~deductibles ~~carrying~~and ~~value~~annual out-of-pocket ~~the~~cost ~~Convertible~~limits ~~Notes~~are tomet. ~~their~~Any ~~face~~reduction ~~amount~~in ~~over~~ the ~~term~~demand offor ~~the~~our ~~notes.~~products, Weincluding ~~will~~those ~~report~~marketed ~~lower~~by ~~net income (or larger net losses) in~~ our ~~financial~~commercialization ~~results~~partners ~~because~~as ~~ASC~~a ~~470-20~~result ~~requires interest to include both the accretion~~ of the ~~debt~~foregoing ~~discount~~factors ~~and~~or ~~the instrument’s non-convertible coupon interest rate~~otherwise, ~~which~~can adversely ~~affects~~affect our ~~reported~~business, oroperating ~~future financial~~ results and ~~may~~financial ~~adversely affect the trading price of our common stock~~condition.

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

Contingent consideration obligations arise from the Zipsor and CAMBIA acquisitions and relate to the potential future contingent milestone payments and royalties payable under the respective agreements. The contingent consideration is initially recognized at its fair value on the acquisition date and is remeasured to fair value at each reporting date until the contingency is resolved with changes in fair value recognized in earnings. The estimates of fair values for the contingent consideration contain uncertainties as it involves assumptions about the probability assigned to the potential milestones and royalties being achieved and the discount rate. Significant judgment is employed in determining these assumptions as of the acquisition date and for each subsequent period. Updates to assumptions could have a significant impact on our results of operations in any given period.

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

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

In addition, if the Convertible Notes become convertible, we are required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than a long-term liability, which would result in a material reduction of our net working capital. Finally, we use the if-converted method to compute

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diluted earnings per share with respect to our convertible debt, which could be more dilutive than assuming the debt would be settled in cash.

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

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

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

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

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effectiveness of our internal control over financial reporting, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our internal controls, which could have an adverse effect on our stock price or expose us to litigation or regulatory proceedings, which may be costly or divert management attention.

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

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

Risks Related to Share Ownership and Other Stockholder Matters

~~Our~~We ~~business~~are ~~could~~subject beto ~~negatively~~risks ~~affected~~from ~~as a result of any~~ future proxy fight or the actions of activist shareholders.

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

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


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


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

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

A proxy contest could also cause our stock price to experience periods of volatility. Further, if a proxy contest results in a change in control of our Board of Directors, such an event could give third parties certain rights under our existing contractual obligations, which could adversely affect our business.33

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

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

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~~Certain~~long-term ~~provisions~~value ~~applicable~~from toour ~~the~~assets, ~~Convertible~~and ~~Notes~~this ~~and~~could ~~the~~in ~~Senior~~turn ~~Notes~~have ~~could~~an ~~delay~~adverse oreffect ~~prevent~~on anour ~~otherwise~~business ~~beneficial~~and ~~takeover~~on orour ~~takeover~~results ~~attempt.~~of operations and financial condition.

~~Certain~~Proxy ~~provisions~~contests ~~applicable~~have toin the ~~Convertible~~past ~~Notes~~ and ~~the~~may ~~indenture~~in ~~governing~~ the ~~Convertible~~future ~~Notes,~~cause ~~the~~our ~~Senior~~stock ~~Notes~~price ~~and~~to ~~the~~experience ~~Note~~periods ~~Purchase~~of ~~Agreement, could make it more difficult or more expensive for a third party to acquire us~~volatility. ~~For example~~Further, if ~~an acquisition event constitutes~~ a ~~fundamental~~proxy ~~change~~contest ~~under~~results ~~the~~in ~~indenture for the Convertible Notes or~~ a ~~major~~change ~~transaction~~in ~~under~~control ~~the~~of ~~Note~~our ~~Purchase~~Board ~~Agreement, holders~~ of ~~the Convertible Notes or the Senior Notes~~Directors, assuch ~~applicable,~~an ~~will~~event ~~have~~would ~~the~~subject ~~right~~us to ~~require~~risks usrelating to ~~repurchase~~certain ~~their~~third ~~notes~~parties’ inrights ~~cash. In addition, if an acquisition event constitutes a “make-whole fundamental change”~~ under the indenture, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such make-whole fundamental change. In any of these cases, and in other cases, our ~~obligations~~existing ~~under~~contractual ~~the Convertible Notes and the indenture~~obligations, ~~the~~which ~~Senior~~could ~~Notes~~adversely ~~and~~affect ~~the Note Purchase Agreement, as well as provisions of~~ our ~~organizational documents and other agreements, could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management~~business.

We doare ~~not~~subject ~~intend~~ to ~~pay~~risks ~~dividends~~related onto ~~our~~unsolicited ~~common~~takeover ~~stock~~attempts ~~so any returns on shares of our common stock will be limited to changes~~ in the ~~value of our common stock~~future.

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters is located in Lake Forest, Illinois, where we lease approximately 31,000 square feet of office space (the Lake Forest Lease). Our prior corporate headquarters was located in Newark, California where we entered into an office and laboratory lease agreement to lease approximately 52,500 rentable square feet commencing in December 2012 and approximately 8,000 additional rentable square feet commencing in July 2015 (the Newark Lease). Following the relocation of our corporate headquarters from Newark, California to Lake Forest, Illinois, we entered into subleases for the Newark facility. For additional information regarding the Lake Forest Lease and the Newark Lease, see “Item 8. Financial Statements and Supplementary Data - Note 12. Commitments and Contingencies.”34

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ITEM 3. LEGAL PROCEEDINGS

For a description of our material pending legal proceedings, see “Item 8. Financial Statements and Supplementary Data - Note 1211. Commitments and Contingencies.”

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

3635

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders of Common Stock

Our common stock trades on the ~~NASDAQ~~Nasdaq Global Market (~~NASDAQ~~Nasdaq) under the symbol “ASRT.” As of December 31, ~~2018~~2019, there were 19 shareholders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one shareholder.

Dividends

Stock Price Performance Graph

The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or Exchange Act

The following graph compares the cumulative total return on an investment in our common stock with the cumulative total return on an investment in each of the ~~NASDAQ~~Nasdaq Composite Index and the ~~NASDAQ~~Nasdaq Pharmaceutical Index. The total return for our common stock and for each index assumes the reinvestment of all dividends, although cash dividends have never been declared on our common stock.

Comparison of 5-Years Cumulative Total Return

Among Assertio Therapeutics, Inc., the ~~NASDAQ~~Nasdaq Composite Index and the ~~NASDAQ~~Nasdaq Pharmaceutical Index

Assumes Initial Investment of $100

	12/31/2013		12/31/2014			12/31/2015			12/31/2016		12/31/2017		12/31/2018
	12/31/2014			12/31/2015				12/31/2016			12/31/2017			12/31/2018		12/31/2019
Assertio Therapeutics, Inc.	$	100	$	~~152~~$	113	$	~~171~~	$	$112	~~170~~	$	7650	$	34$	22	$	8
NASDAQ Composite Index	$	100	$	113		$	120		$	129	$	165	$	159
Nasdaq Composite Index	$	100		$	106			$	114		$	146		$	140	$	189
NASDAQ Pharmaceutical Index	$	100	$	114		$	116		$	103	$	116	$	122
Nasdaq Pharmaceutical Index	$	100		$	102			$	90		$	102		$	107	$	123

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Recent Sales of Unregistered Securities

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

Issuer Purchases of Equity Securities

The Company did not repurchase any shares of its common stock during the fourth quarter of 2019.

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ITEM 6. SELECTED FINANCIAL DATA

The data set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10‑K and also with “~~ITEM~~Item 7. ~~MANAGEMENT~~Management’Ss ~~DISCUSSION~~Discussion ~~AND~~and ~~ANALYSIS~~Analysis OFof ~~FINANCIAL~~Financial ~~CONDITION~~Condition ~~AND~~and ~~RESULTS~~Results OFof ~~OPERATIONS~~Operations.” The following information is presented in thousands, except per share data.

Consolidated Statement of Operations Data (in thousands, except per share amounts)	2018				2017				2016				2015				2014
		Year Ended December 31,
Revenues:
		2019				2018				2017				2016				2015
Product sales, net	129,966				$	379,880			$	455,066			$	341,750			$	114,219
Consolidated Statements of Operations Data:
Royalties and milestones	26,061				844				831				985				1,821
Revenues:
Commercialization Agreement and other revenue(1)	155,743				—				—				—				31,515
Product sales, net		$	108,806			$	129,966			$	379,880			$	455,066			$	341,750
Non-cash PDL royalty revenue(1)	—				—				—				—				242,808
Commercialization Agreement and other revenue (1)		118,614				155,743				—				—				—
Total revenues	311,770				380,724				455,897				342,735				390,363
Royalties and milestones		2,084				26,061				844				831				985
Total costs and expenses	268,111				422,904				431,388				393,135				153,549
Total revenues		229,504				311,770				380,724				455,897				342,735
Income (loss) from operations	43,659				(42,180		)		24,509				(50,400		)		236,814
Total costs and expenses (2)		423,932				268,111				422,904				431,388				393,135
Net income (loss) before income taxes	37,975				(103,925		)		(64,502		)		(123,237		)		213,108
(Loss) income from operations		(194,428		)		43,659				(42,180		)		24,509				(50,400		)
Benefit from (provision for) income taxes	(1,067		)		1,429				(24,218		)		47,499				(81,346		)
Net (loss) income before income taxes		(222,484		)		37,975				(103,925		)		(64,502		)		(123,237		)
Net income (loss)	36,908				$	(102,496	)		$	(88,720	)		$	(75,738	)		$	131,762
Income tax benefit (expense)		5,283				(1,067		)		1,429				(24,218		)		47,499
Basic net income (loss) per share	$	0.58			$	(1.63	)		$	(1.45	)		$	(1.26	)		$	2.26
Net (loss) income		$	(217,201	)		$	36,908			$	(102,496	)		$	(88,720	)		$	(75,738	)
Diluted net income (loss) per share	$	0.57			$	(1.63	)		$	(1.45	)		$	(1.26	)		$	2.05
Basic net (loss) income per share		$	(3.07	)		$	0.58			$	(1.63	)		$	(1.45	)		$	(1.26	)
Shares used in computing basic net income (loss) per share	63,794				62,702				61,297				60,117				58,293
Diluted net (loss) income per share		$	(3.07	)		$	0.57			$	(1.63	)		$	(1.45	)		$	(1.26	)
Shares used in computing diluted net income (loss) per share	64,208				62,702				61,297				60,117				66,307
Shares used in computing basic net (loss) income per share		70,716				63,794				62,702				61,297				60,117
Shares used in computing diluted net (loss) income per share		70,716				64,208				62,702				61,297				60,117



	December 31,
	2019			2018			2017			2016			2015
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments ⁽³⁾	$	42,107		$	110,949		$	128,089		$	177,420		$	209,768
Total assets	527,170			932,866			1,038,617			1,225,337			1,357,249
Total current liabilities ⁽⁴⁾	184,553			246,036			310,580			227,242			219,632
Contingent consideration liability, non-current	168			1,038			1,457			10,247			11,653
Senior Notes ⁽³⁾	76,443			158,309			274,720			466,051			563,012
Convertible Notes ⁽⁵⁾	194,815			287,798			269,510			252,725			237,313
Other long-term liabilities	13,233			19,350			12,842			18,284			10,584
Accumulated (deficit) earnings	(399,801		)	(182,600		)	(219,508		)	(116,744		)	(28,024		)
Total shareholders’ equity	57,958			220,335			169,508			250,788			315,055


(1)	Effective January 8, 2018, the Company entered into a Commercialization Agreement to sub-license NUCYNTA, which resulted in income from variable royalty revenues, net revenue from the amortization of certain contract assets and liabilities, and variable consideration revenue for the reimbursement of certain shared costs.


(2)	At December 31, 2019 the Company recognized an impairment loss of $189.8 million on its NUCYNTA intangible.


(3)	The Company made principal payments of $120.0 million and $82.5 million in 2019 and 2018, respectively. The Company prepaid $114.4 million and $105.0 million of its Senior Notes, including prepayment premiums of $4.4 million and $5.0 million in 2017 and 2016, respectively.


(4)	The increase in current liabilities as of December 31, 2017, is primarily due to the reclassification of principal payments due on our Senior Notes in 2018.


(5)	In August 2019 the Company exchanged $200.0 million aggregate principal amount of the Convertible Senior Notes due March 1, 2021 for a combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024, (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of the Company’s common stock.

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	2018			2017			2016			2015			2014
Consolidated Balance Sheet Data (in thousands)
Cash, cash equivalents and short term investments(3)	$	110,949		$	128,089		$	177,420		$	209,768		$	566,402
Total assets	932,866			1,038,617			1,225,337			1,357,249			711,065
Total current liabilities(1)(2)	246,036			310,580			227,242			219,632			57,499
Contingent consideration liability, non-current	1,038			1,457			10,247			11,653			14,252
Senior Notes(3)	158,309			274,720			466,051			563,012			—
Convertible Notes	287,798			269,510			252,725			237,313			223,150
Other long-term liabilities	19,350			12,842			18,284			10,584			12,387
Accumulated (deficit) earnings	(182,600		)	(219,508		)	(116,744		)	(28,024		)	47,717
Total shareholders’ equity	220,335			169,508			250,788			315,055			364,447

(1) Effective January 8, 2018, the Company entered into a Commercialization Agreement to sub-license NUCYNTA, which results in royalty income. The Company recognized the entire remaining balance of the liability related to sale of future royalties and milestones of approximately $147.0 million as non‑cash PDL royalty revenue during 2014.

(2) The increase in current liabilities as of December 31, 2017, is primarily due to the reclassification of principal payments due on our Senior Notes in 2018. The increase in total current liabilities as of December 31, 2015 is primarily due to the acquisition of NUCYNTA in April 2015.

(3) The Company made principal payments of $82.5 million in 2018. The Company prepaid $114.4 million and $105.0 million of its Senior Notes, including prepayment premiums of $4.4 million and $5.0 million in 2017 and 2016, respectively.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

WeThe ~~area~~following ~~specialty~~Management’s ~~pharmaceutical~~Discussion ~~company~~and ~~focused~~Analysis onof ~~neurology,~~Financial ~~orphan~~Condition and ~~specialty~~Results ~~medicines. Our~~of ~~current~~Operations ~~specialty~~(MD&A) ~~pharmaceutical~~is ~~business~~intended ~~includes~~to help the ~~following~~reader ~~three~~understand ~~products~~our ~~which~~results weof ~~market~~operations and financial condition. The MD&A is provided as a supplement to, and should be read in ~~the~~conjunction Uwith, our consolidated financial statements and notes thereto included in “Item 8 - Financial Statements and Supplementary Data.~~S.:~~”

•The ~~Gralise®~~MD&A ~~(gabapentin),~~generally adiscusses ~~once~~2019 ~~daily~~and ~~product~~2018 ~~for~~items ~~the~~and ~~management~~year-to-year comparisons between 2019 and 2018. Discussions of ~~postherpetic~~2017 ~~neuralgia~~items ~~(PHN),~~and year-to-year comparisons between 2018 and 2017 that weare ~~launched~~not included in ~~October~~this ~~2011~~Form 10-K can be found in Part II Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

• ~~CAMBIA®~~in ~~(diclofenac~~the ~~potassium~~Company’s ~~for~~Annual ~~oral~~Report ~~solution),~~on aForm ~~non~~10-~~steroidal~~K ~~anti-inflammatory drug~~ for the ~~acute~~fiscal ~~treatment~~year ofended ~~migraine~~December ~~attacks~~31, ~~that we acquired in December 2013~~2018.

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

WeAssertio ~~also~~Therapeutics, ~~have~~Inc. ~~the exclusive rights to market long-acting cosyntropin~~ (~~synthetic~~Assertio ~~ACTH)~~or in the ~~U.S.~~Company) ~~and Canada. Long-acting cosyntropin~~ is ~~an alcohol-free formulation of~~ a ~~synthetic~~leading ~~analogue of ACTH. In February 2019~~diversified, ~~notification~~specialty ofpharmaceutical ~~acceptance~~company ~~for~~focused ~~filing~~on ~~was~~distinctive ~~received~~products ~~from~~that ~~the~~offer ~~FDA~~enhanced ~~for~~therapeutic ~~our~~options ~~505(b)(2) NDA~~ for ~~our~~patients ~~novel~~in ~~injectable formulation of long-acting cosyntropin. We~~need, ~~together~~while ~~with~~maintaining ~~our development partner, seek approval for~~ the ~~use~~highest ofethical ~~this~~standards ~~product as a diagnostic drug~~ in ~~the~~all ~~screening~~our ofbusiness ~~patients presumed to have adrenocortical insufficiency~~practices.

WeAs ~~maintain~~of aDecember ~~Commercialization~~31, ~~Agreement~~2019, ~~with~~the ~~Collegium~~Company’s ~~Pharmaceutical,~~specialty ~~Inc.~~pharmaceutical business consisted primarily of Gralise® (~~Collegium~~gabapentin), ~~pursuant~~a toonce-daily ~~which~~product wefor ~~granted~~the ~~Collegium~~management ~~the~~of ~~right~~postherpetic toneuralgia ~~commercialize~~(PHN) ~~the~~that ~~NUCYNTA~~we launched in 2011; CAMBIA®(diclofenac ~~franchise~~potassium offor ~~pain~~oral ~~products~~solution), ina nonsteroidal anti-inflammatory drug for the ~~United~~acute ~~States.~~treatment ~~Pursuant~~of tomigraine ~~the~~attacks ~~Commercialization~~acquired ~~Agreement,~~by ~~Collegium~~the ~~assumed~~Company ~~all~~in ~~commercialization~~December ~~responsibilities~~2013; ~~for~~and ~~the~~Zipsor® ~~NUCYNTA~~(diclofenac ~~franchise~~potassium ~~effective~~liquid ~~January~~filled 9capsules), ~~2018,~~a ~~including~~nonsteroidal ~~sales~~anti-inflammatory ~~and~~drug ~~marketing. We~~for ~~receive~~the atreatment ~~royalty~~of onmild ~~all~~to ~~NUCYNTA~~moderate ~~revenues~~acute ~~based~~pain onacquired ~~certain~~by ~~net~~the ~~sales~~Company ~~thresholds~~in June 2012, marketed in the U.S.

On December 4, 2017, the Company announced the Commercialization Agreement with Collegium, pursuant to which the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. Pursuant to the Commercialization Agreement, Collegium assumed all commercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and the Company received royalties on all NUCYNTA revenues based on certain net sales thresholds.

On December 12, 2019, the Company announced it entered into an agreement with Golf Acquiror LLC, an affiliate to Alvogen, Inc. (Alvogen), a global privately held pharmaceutical company, under which Alvogen acquired and assumed all responsibilities associated with the product Gralise (gabapentin). Under the terms of the agreement, Alvogen will pay Assertio a total value of $127.5 million. This included $75.0 million in cash at closing on January 10, 2020, and the balance payable as 75% of Alvogen’s first $70.0 million of Gralise net sales after the closing.

On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (the Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.

On February 19, 2020, the Company announced it entered into separate, privately negotiated agreements with a limited number of holders of the Company’s 2021 Notes and 2024 Notes to repurchase approximately $188.0 million aggregate principal amount of the outstanding 2021 Notes and 2024 Notes.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

AThe ~~detailed~~Company’s ~~discussion~~consolidated offinancial ~~our~~statements ~~significant~~are ~~accounting~~prepared ~~policies can be found~~ in ~~Note 1~~accordance ofwith ~~the~~U.S. ~~Notes~~generally toaccepted ~~Consolidated~~accounting ~~Financial~~principles, ~~Statements~~or U.S. GAAP, and ~~the~~U.S. ~~impact~~Securities and ~~risks~~Exchange ~~associated~~Commission ~~with~~(SEC) ~~our~~regulations ~~accounting~~for ~~policies~~annual ~~are~~reporting. ~~discussed~~Our ~~throughout~~management’s ~~this~~discussion ~~Annual~~and ~~Report~~analysis onof ~~Form 10‑K~~our financial condition and inresults ~~the~~of ~~Notes~~operations toare ~~the~~based ~~Consolidated~~on ~~Financial~~our ~~Statements~~consolidated financials. ~~Critical~~The ~~accounting~~preparation ~~policies~~of ~~are~~these ~~those~~financial ~~that~~statements may require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. We consider certain accounting policies related to revenue recognition, accrued liabilities, and use of estimates to be critical policies. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience, ~~and~~information onavailable at the time, and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain. A more detailed discussion of our significant accounting policies can be found in “Note 1. Organization and Significant Accounting Policies,” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report, and the impact and risks associated with our accounting policies are discussed throughout this Annual Report on Form 10‑K and in the Notes to the Consolidated Financial Statements.

Revenue Recognition

Our revenues consist primarily of commercial product revenues, license revenue from the Commercialization Agreement, and royalties and milestone revenue from license agreements. We account for revenue arising from contracts and customers in accordance with Accounting Standards ~~Update~~Codification (~~ASU or Update~~ASC) ~~2014-9~~606, Revenue from Contracts with Customers (ASC 606), which was adopted on January 1, 2018 using the modified retrospective transition method. There was no adjustment to our opening balance of accumulated deficit resulting from the adoption of this guidance. For further information regarding the adoption of ASC 606, see Note 1 to the Consolidated Financial Statements included herein.

~~Under~~ ~~ASC~~Our ~~606,~~accounting wepolicy ~~recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange~~ for ~~those goods or services. To determine~~ revenue recognition ~~for~~will ~~arrangements~~have ~~that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with~~ a ~~customer;~~substantial ~~(ii)~~impact ~~identify~~on ~~the~~reported ~~performance~~results ~~obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;~~ and ~~(v)~~relies ~~recognize~~on ~~revenue~~certain ~~when (or as) the Company satisfies a performance obligation~~estimates. We ~~only~~Estimates ~~apply~~are ~~the~~based ~~five-step~~on ~~model~~historical toexperience ~~contracts~~and ~~when~~various itother isassumptions ~~probable~~ that we ~~will~~believe ~~collect the consideration we~~ are ~~entitled~~reasonable tounder ~~in exchange for~~ the ~~goods or services we transfer to the customer~~circumstances. At ~~contract~~Actual ~~inception,~~results ~~once~~may ~~the~~differ ~~contract~~from isthese ~~determined~~estimates tounder bedifferent ~~within~~assumptions ~~the scope of ASC 606, we assess the goods~~ or conditions.

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services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation, when (or as) the performance obligation is satisfied.

Variable consideration arising from sales or usage-based royalties, promised in exchange for a license of the Company’s Intellectual Property, is recognized at the later of (i) when the subsequent product sales occur or (ii) the performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.

We recognize a contract asset relating to our conditional right to consideration for completed performance obligations. Accounts receivable are recorded when the right to consideration becomes unconditional. A contract liability is recorded for payments received in advance of the related performance obligation being satisfied under the contract.

Commercialization Agreement

We derive revenue from the Commercialization Agreement with Collegium whereby we granted Collegium the right to commercialize the NUCYNTA franchise of ~~pain~~ products in the ~~United States~~U. S. We entered into the Commercialization ~~agreement~~Agreement in December 2017, which became effective in January 2018, and amended the agreement in November 2018. Prior to the amendment, we recognized the portion of the transaction price allocated to the license and facilitation services ratably over the term as we ~~views~~view our performance obligations as a series of distinct goods or services that are substantially the same and that have the same pattern of transfer. Prior to the November 2018 amendment, the consideration related to the license and facilitation services was fixed and recognized ratably over the contract term. Following the ~~Commercialization~~November ~~Agreement~~2018 amendment, the royalty payments represent variable ~~compensation~~consideration that isare subject to the sales -based royalty exception for licenses of intellectual property ~~because~~and are recognized at the ~~License~~later isof (i) when the ~~predominant~~subsequent ~~component~~product sales occur or (ii) the performance obligation, to which some or all of ~~this~~the ~~arrangement~~sales-based royalty has been allocated, has been satisfied.

Product Sales

We sell commercial products to wholesale distributors and ~~retail~~specialty pharmacies. Product sales revenue is recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically occurs upon delivery to the customer. Our performance obligation is to deliver product to the customer, and the performance obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable product sales allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable reserves for these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.

~~Product~~ Sales ~~Allowances—We~~deductions ~~consider~~consist ~~products~~primarily ~~sales~~of ~~allowances~~provisions tofor beproduct ~~variable~~returns, ~~consideration~~wholesaler and ~~estimates~~pharmacy ~~and~~discounts, ~~recognizes~~prompt ~~product~~pay ~~sales~~discounts, ~~allowances~~patient asdiscount aprograms, ~~reduction~~chargebacks, ofmanaged ~~product~~care ~~sales~~rebates, inand ~~the~~government ~~same~~rebates. ~~period~~These ~~the~~deductions ~~related~~are ~~revenue~~considered isvariable ~~recognized. Product~~consideration ~~sales~~and ~~allowances~~ are ~~based~~recorded onas ~~actual~~reductions orto ~~estimated~~revenue ~~amounts~~in ~~owed~~the onsame period as the related ~~sales~~revenues are recognized. These estimates take into consideration the terms of our agreements with customers, historical product returns, rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. We use the most likely method in estimating product sales allowances. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our sales allowances include:

Product Returns—We allow customers to return product for credit with respect to that product within six months before and up to 12 months after its product expiration date. We estimate product returns and associated credit on NUCYNTA ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. Estimates for returns are based on historical return trends by product or by return trends of similar products, taking into consideration the shelf life of the product at the time of shipment, shipment and prescription trends, estimated distribution channel inventory levels and consideration of the introduction of competitive products. Under the Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, we are only financially responsible for product returns for product that were sold by us, which are identified by specific lot numbers.40

The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to 48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of our products and its return policy of issuing credits with respect to product that is returned within six months before and up to 12 months after its product expiration date, there may be a significant period of time between when the product is shipped and when we issue credit on a returned product. Accordingly, we may have to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustments.

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~~Wholesaler~~known ~~and~~market ~~Retail~~events, ~~Pharmacy~~such ~~Discounts~~as —competitive Wepricing ~~offer~~and ~~contractually~~new ~~determined~~product ~~discounts~~introductions. toWe ~~certain~~use ~~wholesale~~the ~~distributors~~most ~~and~~likely ~~retail~~method ~~pharmacies~~in ~~that~~estimating ~~purchase~~product ~~directly~~sales ~~from it as well as specialty pharmacies~~allowances. ~~These~~If ~~discounts~~actual ~~are~~future ~~either~~results ~~taken~~vary ~~off~~from ~~invoice~~our atestimates, ~~the~~we ~~time~~may ofneed ~~shipment or paid~~ to ~~the~~adjust ~~customer~~these onestimates, awhich ~~quarterly~~could ~~basis~~have ~~one~~an toeffect ~~two~~on ~~months~~product ~~after~~sales ~~the~~and ~~quarter~~earnings in ~~which~~the ~~product~~period ~~was~~of ~~shipped~~adjustment. toOur ~~the~~sales ~~customer.~~allowances consist of:

~~Prompt~~Product ~~Pay Discounts~~Returns—We ~~offer~~allow ~~cash~~customers ~~discounts~~to return product for credit with respect to that product within six months before and up to 12 months after its ~~customers~~product ~~(generally~~expiration 2%date. We estimate product returns and associated credit on NUCYNTA ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. Estimates for returns are based on historical return trends by product or by return trends of similar products, taking into consideration the ~~sales~~shelf ~~price)~~life asof anthe ~~incentive~~product ~~for~~at ~~prompt~~the ~~payment.~~time ~~Based~~of ~~upon~~shipment, ~~our~~shipment ~~experience~~and prescription trends, weestimated ~~expect~~distribution ~~our~~channel ~~customers~~inventory tolevels ~~comply~~and consideration of the introduction of competitive products. We did not assume financial responsibility for returns of NUCYNTA ER and NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the ~~payment~~divestiture ~~terms~~of Lazanda to ~~earn~~Slán, ~~the~~we ~~cash~~are ~~discount~~only financially responsible for product returns for product that were sold by us, which are identified by specific lot numbers.

~~Patient~~The ~~Discount~~shelf ~~Programs—We~~life ~~offer~~of ~~patient~~NUCYNTA ~~discount~~ER ~~co-pay~~and ~~assistance~~NUCYNTA ~~programs~~is in24 ~~which~~months ~~patients~~to ~~receive~~36 ~~certain~~months ~~discounts~~from ~~off~~the ~~their~~date ~~prescriptions~~of attablet ~~participating~~manufacture. ~~retail~~The ~~pharmacies~~shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The ~~discounts~~shelf ~~are~~life ~~reimbursed~~of byCAMBIA usis ~~approximately~~24 ~~one~~months ~~month~~to 48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of our products and our return policy of issuing credits with respect to product that is returned within six months before and up to 12 months after its product expiration date, there may be a significant period of time between when the ~~prescriptions~~product ~~subject~~is shipped and when the Company issues credit on a returned product. Accordingly, we may have to adjust these estimates, which could have an effect on product sales and earnings in the ~~discount~~period ~~are~~of ~~filled~~adjustments.

~~Medicaid~~Wholesaler ~~Rebates~~and Pharmacy Discounts—We ~~participates~~offer incontractually ~~Medicaid~~determined ~~rebate~~discounts ~~programs,~~to ~~which~~certain ~~provide~~wholesale ~~assistance~~distributors toand ~~certain~~specialty ~~low~~pharmacies ~~income~~that ~~patients~~purchase ~~based~~directly onfrom ~~each~~it. ~~individual~~These ~~state’s~~discounts ~~guidelines~~are ~~regarding~~either ~~eligibility~~taken ~~and~~off ~~services.~~invoice ~~Under~~at the ~~Medicaid~~time ~~rebate~~of ~~programs,~~shipment weor ~~pay~~paid ato ~~rebate~~the tocustomer ~~each~~on ~~participating~~a ~~state,~~quarterly ~~generally~~basis ~~two~~one to ~~three~~two months after the quarter in which ~~prescriptions~~product ~~subject~~was shipped to the ~~rebate are filled~~customer.

~~Chargebacks~~Prompt Pay Discounts—We ~~provide~~offer cash discounts to ~~authorized~~its ~~users~~customers ~~of the Federal Supply Schedule~~ (~~FSS)~~generally 2% of the ~~General~~sales ~~Services~~price) ~~Administration~~as ~~under~~ an ~~FSS~~incentive ~~contract~~for ~~with~~prompt ~~the Department of Veterans Affairs~~payment. ~~These~~Based ~~federal~~on ~~entities~~our ~~purchase products from the wholesale distributors at a discounted price~~experience, ~~and~~we ~~the~~expect ~~wholesale~~our ~~distributors~~customers ~~then~~to ~~charge~~comply ~~back~~with the ~~difference~~payment ~~between~~terms ~~the~~to ~~current~~earn ~~retail price and~~ the ~~price~~cash ~~the federal entity paid for the product~~discount.

Patient Discount Programs—We offer patient discount co-pay assistance programs in which patients receive certain discounts off their prescriptions at participating retail and specialty pharmacies. The discounts are reimbursed by us approximately one month after the prescriptions subject to the discount are filled.

Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally two to three months after the quarter in which prescriptions subject to the rebate are filled.

Chargebacks—We provide discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract with the Department of Veterans Affairs. These federal entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to us the difference between the current retail price and the price the federal entity paid for the product.

Managed Care Rebates—We offer discounts under contracts with certain managed care providers. We generally pay managed care rebates one to three months after the quarter in which prescriptions subject to the rebate are filled.

Medicare Part D Coverage Gap Rebates—We participate in the Medicare Part D Coverage Gap Discount Program under which it provides rebates on prescriptions that fall within the “donut hole” coverage gap. We generally pay Medicare Part D Coverage Gap rebates two to three months after the quarter in which prescriptions subject to the rebate are filled.

~~Royalties~~We believe our estimates related to gross‑to‑net sales adjustments for wholesaler and pharmacy fees and discounts, prompt payment discounts, patient discount programs and other government chargebacks do not have a high degree of estimation complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that our estimated product return allowances, managed care rebates and Medicaid rebates are judgmental and are subject to change based on our experience and certain quantitative and qualitative factors. Adjustments to estimates for these allowances have not been material.

For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue at the later of (1) when the related sales occur, or (2) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).41

We currently receive royalties based on sales of CAMBIA in Canada and sales of NUCYNTA ER in Canada and Japan, which are recognized as revenue when the related sales occur as there are no continuing performance obligations by the Company under those agreements.

We believe our estimates related to gross‑to‑net sales adjustments for wholesaler and retail pharmacy fees and discounts, prompt payment discounts, patient discount programs and other government chargebacks do not have a high degree of estimation complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that our estimated product return allowances, managed care rebates and Medicaid rebates are judgmental and are subject to change based on our experience and certain quantitative and qualitative factors. Adjustments to estimates for these allowances have not been material.

Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate. Such changes in estimate could affect our results of operations and financial position.

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AOur ~~roll‑forward~~product ofsales ~~our~~allowances ~~product~~and ~~revenue~~related ~~allowances~~accruals ~~for~~are ~~the~~evaluated ~~three~~each ~~years~~reporting ~~ended~~period ~~December~~and ~~31,~~adjusted ~~2018~~when trends or significant events indicate that a change in estimates is asappropriate. ~~follows:~~Such changes in estimate could affect our results of operations and financial position.

(in thousands)	Contract SalesDiscounts (1)(2)			Product Returns (2)			CashDiscounts (2)			Total
Balance at December 31, 2015	$	103,031		$	18,027		$	1,458		$	122,516
Revenue Allowances:
Provision related to current period sales	314,611			9,997			15,898			340,506
Changes in estimates related to sales made in prior years	549			(1,961		)	—			(1,412		)
Payments and credits related to sales made in current period	(206,684		)	—			(13,789		)	(220,473		)
Payments and credits related to sales made in prior periods	(103,580		)	(2,454		)	(1,457		)	(107,491		)
Balance at December 31, 2016	$	107,927		$	23,609		$	2,110		$	133,646
Revenue Allowances:
Provision related to current period sales	325,489			13,555			14,858			353,902
Changes in estimates related to sales made in prior years	1,483			7,875			—			9,358
Payments and credits related to sales made in current period	(224,002		)	—			(13,358		)	(237,360		)
Payments and credits related to sales made in prior periods	(104,751		)	(15,357		)	(2,110		)	(122,218		)
Balance at December 31, 2017	$	106,146		$	29,682		$	1,500		$	137,328
Revenue Allowances:
Provision related to current period sales	123,623			5,716			5,024			134,363
Changes in estimates related to sales made in prior years	(19,210		)	7,327			—			(11,883		)
Payments and credits related to sales made in current period	(75,380		)	—			(4,605		)	(79,985		)
Payments and credits related to sales made in prior periods	(86,936		)	(14,986		)	(1,500		)	(103,422		)
Balance at December 31, 2018	$	48,243		$	27,739		$	419		$	76,401

A roll‑forward of our product revenue allowances for the three years ended December 31, 2019 is as follows (in thousands):

(1) Includes wholesaler fees and retail discounts, patient support programs, managed care rebates, and government chargebacks and rebates.



	Contract Sales Discounts (1)(2)			Product Returns (2)			Cash Discounts (2)			Total
Balance at December 31, 2016	$	107,927		$	23,609		$	2,110		$	133,646
Revenue Allowances:
Provision related to current period sales	325,489			13,555			14,858			353,902
Changes in estimates related to sales made in prior years	1,483			7,875			—			9,358
Payments and credits related to sales made in current period	(224,002		)	—			(13,358		)	(237,360		)
Payments and credits related to sales made in prior periods	(104,751		)	(15,357		)	(2,110		)	(122,218		)
Balance at December 31, 2017	$	106,146		$	29,682		$	1,500		$	137,328
Revenue Allowances:
Provision related to current period sales	123,623			5,716			5,024			134,363
Changes in estimates related to sales made in prior years	(19,210		)	7,327			—			(11,883		)
Payments and credits related to sales made in current period	(75,380		)	—			(4,605		)	(79,985		)
Payments and credits related to sales made in prior periods	(86,936		)	(14,986		)	(1,500		)	(103,422		)
Balance at December 31, 2018	$	48,243		$	27,739		$	419		$	76,401
Revenue Allowances:
Provision related to current period sales	148,907			19,380			5,396			173,683
Changes in estimates related to sales made in prior years	(2,561		)	(7,861		)	—			(10,422		)
Payments and credits related to sales made in current period	(109,181		)	—			(4,155		)	(113,336		)
Payments and credits related to sales made in prior periods	(45,682		)	(20,042		)	(419		)	(66,143		)
Balance at December 31, 2019	$	39,726		$	19,216		$	1,241		$	60,183

(21) InIncludes ~~November~~wholesaler ~~2017~~and wepharmacy ~~divested~~discounts, ~~the~~patient ~~rights~~support toprograms, ~~Lazanda~~managed tocare ~~Slán. In January 2018~~rebates, weand ~~entered~~government ~~into~~chargebacks anand ~~agreement which granted commercialization rights of NUCYNTA to Collegium~~rebates. ~~NUCYNTA was acquired from Janssen Pharma in April 2015.~~

~~Milestones~~(2) In November 2017, we divested the rights to Lazanda to Slán. In January 2018, we entered into an agreement which granted commercialization rights of NUCYNTA to Collegium. We continue to recognize sales reserve estimate adjustments related to sales recognized for Lazanda and NUCYNTA in prior periods.

For arrangements that include milestones, we recognize such revenue using the most likely method. As part of adopting ASC 606, we evaluated whether the future milestones should have been included as part of the transaction price in periods before January 1, 2018. We concluded that because of development and regulatory risks at the time, it was probable that a significant revenue reversal could have occurred. At the end of each subsequent reporting period, we re-evaluate the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts our estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue in the period of adjustment.

Stock‑Based Compensation

WeOur ~~use~~stock-based ~~the~~compensation ~~Black~~generally ~~Scholes~~includes ~~option~~stock ~~valuation~~options, ~~model~~restricted tostock ~~determine~~units ~~the~~(RSUs), ~~fair~~performance ~~value~~share ofunits ~~stock~~(PSUs), ~~options~~ and purchases under our employee stock purchase plan (ESPP) ~~shares~~. The ~~determination~~Company ofaccounts ~~the~~for ~~fair~~forfeitures ~~value~~as ofthey ~~stock~~occur ~~based~~for ~~payment~~each ~~awards~~type ~~on the date~~ of ~~grant~~award. ~~using~~Stock-based ancompensation ~~option~~expense ~~valuation~~related ~~model~~to isrestricted ~~affected by our~~ stock ~~price~~unit asawards ~~well~~(RSUs) asis ~~assumptions,~~based ~~which~~on ~~include~~the ~~our~~market ~~expected~~value ~~term~~ of the ~~award,~~underlying ~~the expected~~ stock ~~price~~on ~~volatility, risk free interest rate and expected dividends over~~ the ~~expected~~date ~~term~~ of ~~the~~grant ~~award.~~and ~~The~~is ~~fair~~recognized ~~value~~ratably ofover ~~restricted stock units equals~~ the ~~market~~requisite ~~value~~service ~~of the underlying stock on the date of grant~~period.

WeThe ~~use~~stock-based ~~historical~~compensation ~~option~~expense ~~exercise~~related ~~data~~ to ~~estimate~~performance share units (PSUs) is estimated at grant date based on the ~~expected~~fair ~~term~~value of the ~~options~~award. WeThe ~~estimate~~PSU awards are measured exclusively to the ~~volatility~~relative oftotal ~~our~~shareholder ~~common~~return ~~stock~~(TSR) ~~price~~performance, bywhich ~~using~~is measured against the three-year ~~historical~~TSR ~~volatility~~of ~~over~~a custom index of companies. The actual number of shares awarded is adjusted to between zero and 200% of the ~~expected~~target ~~term~~award amount based upon achievement in each of the ~~options~~three independent successive one-year tranches. WeTSR ~~base~~relative ~~the~~to ~~risk~~peers ~~free~~is ~~interest~~considered ~~rate~~a onmarket ~~U.S.~~condition ~~Treasury~~under ~~zero~~applicable ~~coupon~~authoritative ~~issues~~guidance. For PSUs granted with ~~terms~~vesting ~~similar~~subject to market conditions, the ~~expected~~fair ~~term~~value of the ~~options~~award asis ofdetermined ~~the~~at grant date using the Monte Carlo model, and expense is recognized ratably over the requisite service period regardless of ~~grant~~whether or not the market condition is satisfied. WeThe doMonte ~~not~~Carlo valuation model considers a variety of potential future share prices for Assertio and our peer companies in a selected market index.

43We use the Black-Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (ESPP) shares. The determination of the fair value of stock-based payment awards on the date of grant using an

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option valuation model is affected by our stock price as well as assumptions, which include the expected term of the award, the expected stock price volatility, risk-free interest rate and expected dividends over the expected term of the award. We use historical option exercise data to estimate the expected term of the options. We estimate the volatility of our common stock price by using the historical volatility over the expected term of the options. We base the risk-free interest rate on U.S. Treasury zero coupon issues with terms similar to the expected term of the options as of the date of grant. We do not anticipate paying any cash dividends in the foreseeable future, and therefore, ~~uses~~use an expected dividend yield of zero in the option valuation model. Stock-based compensation expense related to the ESPP and options are recognized on a straight-line basis over their respective term.

Intangible Assets

Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived intangible assets subject to amortization. We determine the fair values of acquired intangible assets as of the acquisition date. Discounted cash flow models are typically used in these valuations, which require the use of significant estimates and assumptions, including but not limited to, developing appropriate discount rates and estimating future cash flows from product sales and related expenses. The fair value recorded is amortized on a straight-line basis over the estimated useful life of the asset. We evaluate purchased intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss is calculated as the excess of the carrying amount over the fair value. Estimating future cash flows and fair value related to an intangible asset involves significant estimates and assumptions. If our assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense. ~~We have not recorded any impairment charges relating to our intangible assets since their acquisition.~~

At December 31, 2019 we determined there were indicators of impairment present related to the NUCYNTA intangible asset based on current unfavorable commercial outlook resulting in a downward revision to the expected future cash flows from the NUCYNTA franchise. As a result, we recognized an impairment loss of $189.8 million on the NUCYNTA intangible asset to reduce the carrying value of $564.8 million to its estimated fair value of $375.0 million at December 31, 2019. The evaluation of fair value was determined under ASC 820, Fair Value Measurement (ASC 820) as the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date of December 31, 2019. The fair value was based on a combination of an income approach and the observable transaction price from Collegium’s purchase of the NUCYTNA franchise in February 2020. The income approach consisted of the present value of future cash flows that a market participant would expect to receive from holding the asset in its current use. This included assumptions of a market participant’s view such as, but not limited to, future product net sales, related operating expenses, competitive landscape, and a discount rate to reflect the risk inherent in the future cash flows. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and could potentially impact the company's results of operations.

Income Taxes

Our income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. We follow the guidelines set forth in the applicable accounting guidance regarding the recoverability of any tax assets recorded on the consolidated balance sheet and provide any necessary allowances as required. Determining necessary allowances requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. When we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that we determine is more likely than not to be realized. At this time, we have recorded a valuation allowance against the net deferred tax assets.

We are subject to examination of our income tax returns by various tax authorities on a periodic basis. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. We have applied the provisions of the applicable accounting guidance on accounting for uncertainty in income taxes, which requires application of a more‑likely‑than‑not threshold to the recognition and de‑recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that, in our judgment, is more than 50 percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such change.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the Tax Act). The Tax Act includes significant changes to the U.S. corporate income tax system including, but not limited to, a federal corporate rate reduction from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. In order to calculate the effects of the new corporate tax rate on our deferred tax balances, ASC 740 Income Taxes (ASC 740) required the re-measurement of our deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to reverse in the future. Due to our valuation allowance position and deferred tax liabilities, there is no change to the presentation of the deferred tax balances on the financial statements, except for the re-measurement of these deferred tax balances in the income tax footnote which were fully offset by a corresponding change to our valuation allowance. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2018, we completed our accounting for all tax effects related to the Tax Act, and there were no material adjustments recorded during the year to the previously recorded provisional amounts reflected in our 2017 financial statements.43

RESULTS OF OPERATIONS

Our results of operations in 2018 differ significantly from our reported results for 2017 and 2016.

In December 2017, we entered into the Commercialization Agreement pursuant to which we granted to Collegium the rights to commercialize NUCYNTA. As a result, we only recognized NUCYNTA product sales from January 1, 2018 through January 8, 2018. For the remainder of 2018 we recognized royalty revenue with respect to the Commercialization Agreement.

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InOn ~~November~~December 22, 2017, wethe ~~entered~~U.S. ~~into~~government ~~agreements~~enacted ~~with~~the ~~Slán~~Tax ~~pursuant~~Cuts toand ~~which~~Jobs weAct ~~acquired~~(the ~~Slán’s~~Tax ~~rights~~Act). toThe ~~market~~Tax ~~long-acting~~Act ~~cosyntropin~~includes ~~(synthetic~~significant ~~ACTH)~~changes into the U.S. corporate income tax system including, ~~and~~but ~~Slán~~not ~~acquired~~limited ~~our~~to, ~~rights~~a federal corporate rate reduction from 35% to ~~Lazanda~~21% and limitations on the deductibility of interest expense and executive compensation. ~~The~~In ~~fair~~order ~~value~~to calculate the effects of the ~~rights~~new tocorporate ~~market~~tax ~~long~~rate on our deferred tax balances, ASC 740, Income Taxes (ASC 740) required the re-~~acting~~measurement ~~cosyntropin~~of ~~was~~our ~~estimated~~deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to bereverse ~~approximately~~in ~~$24~~the future.9 ~~million~~Due to our valuation allowance position and deferred tax liabilities, inthere ~~accordance~~is ~~with~~no change to the ~~applicable~~presentation ~~accounting~~of ~~rules~~the deferred tax balances on the financial statements, ~~was~~except ~~recorded~~for asthe ~~“acquired~~remeasurement inof ~~process~~these ~~research~~deferred ~~and~~tax ~~development”~~balances in the ~~accompanying~~income ~~consolidated~~tax ~~statements~~footnote ofwhich ~~operations~~were ~~for~~fully ~~the~~offset ~~year~~by ~~ended~~a ~~December~~corresponding ~~31,~~change to our valuation allowance. In December 2017, asthe ~~long-acting~~SEC ~~cosyntropin~~staff ~~was~~issued ~~deemed~~Staff toAccounting ~~have~~Bulletin noNo. ~~alternative~~118, ~~future~~Income ~~use. The~~Tax ~~related~~Accounting ~~divestiture~~Implications of ~~Lazanda~~the ~~resulted~~Tax inCuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a ~~gain~~measurement period not to extend beyond one year of ~~approximately~~the ~~$17~~enactment date.1 ~~million~~As of December 31, 2018, we completed our accounting for all tax effects related to the Tax Act, and ~~was~~there ~~recorded~~were asno ~~“gain~~material onadjustments ~~divestiture~~recorded ofduring ~~Lazanda”~~the inyear to the ~~accompanying~~previously ~~consolidated~~recorded ~~statements~~provisional ofamounts ~~operations~~reflected in our 2017 financial statements.

RESULTS OF OPERATIONS

Revenues

~~Total~~The ~~revenues~~following ~~are~~table ~~summarized~~summarizes intotal revenue for the ~~following~~years ~~table~~ended December 31, 2019 and 2018 (in thousands):

(in thousands)	2018			2017		2016
	Year ended December 31,
Product sales, net:
	2019			2018
Gralise	$	58,077		$	77,034	$	88,446
Product sales, net:
CAMBIA	35,803			31,597		31,273
Gralise	$	63,124		$	58,077
Zipsor	16,387			16,700		27,539
CAMBIA	32,453			35,803
Total neurology product sales, net	110,267			125,331		147,258
Zipsor	12,498			16,387
NUCYNTA products(1)	18,944			239,539		281,261
Total neurology product sales, net	108,075			110,267
Lazanda(2)	755			15,010		26,547
NUCYNTA products(1)	927			18,944
Total product sales, net	129,966			379,880		455,066
Lazanda(2)	(196		)	755
Commercialization agreement:
Total product sales, net	108,806			129,966
Commercialization rights and facilitation services, net	100,038			—		—
Commercialization agreement:
Revenue from transfer of inventory	55,705			—		—
Commercialization rights and facilitation services, net	118,614			100,038
Royalties and milestone revenue	26,061			844		831
Revenue from transfer of inventory	—			55,705
Total revenues	$	311,770		$	380,724	$	455,897
Royalties and milestone revenue	2,084			26,061
Total revenues	$	229,504		$	311,770

(1) NUCYNTA product sales for the year ended December 31, 2018 reflect our sales of NUCYNTA between January 1 and January 8, 2018. During the year ended December 31, 2018, ~~we recognized sales reserve estimate adjustments related to sales recognized for NUCYNTA and Lazanda~~ in ~~prior periods. During the first quarter of 2018, in~~ connection with the Collegium transaction, we recognized revenue of $12.5 million related to the release of NUCYNTA sales reserves which were primarily recorded in the fourth quarter of 2017, as financial responsibility for those reserves transferred to Collegium upon closing of the Commercialization Agreement. Subsequent to January 8, 2018 we continue to recognize sales reserve estimate adjustments related to sales recognized for NUCYNTA in prior periods.

(2) We divested Lazanda in November 2017. ~~Product~~We ~~sales~~continue ~~for~~to ~~the~~recognize ~~year~~sales ~~ended~~reserve ~~December~~estimate ~~31,~~adjustments ~~2018~~related ~~relate~~ to sales ~~reserve~~recognized ~~estimate~~for ~~adjustments~~Lazanda in prior periods.

Product sales

~~NUCYNTA. Product~~Gralise ~~sales~~net ofproducts ~~NUCYNTA~~sales for the year ended December 31, ~~2018~~2019 ~~reflect~~increased ~~product~~by ~~sales solely between January 1 and January 8, 2018 prior to closing of the Commercialization Agreement and the release of approximately~~ $~~12.~~5.0 million ofas ~~rebate~~compared ~~reserves that Collegium assumed pursuant~~ to the ~~terms~~same ofperiod ~~the~~in ~~Commercialization Agreement. We will not record NUCYNTA product net sales during the remainder of the term of the Commercialization Agreement. See Note 4~~2018, ~~"Revenue”~~primarily ofdue ~~the Notes~~ to ~~the~~favorable ~~Consolidated~~payer ~~Financial~~mix ~~Statements~~offset ~~for~~by ~~further~~increased ~~discussion~~patient ofdiscount ~~the Commercialization Agreement and the revenue recognized related to such agreement in 2018~~programs.

~~The~~CAMBIA ~~decrease~~net ~~in NUCYNTA~~ product sales for the year ended December 31, ~~2017~~2019 ~~compared~~decreased to 2016 was primarily the result of lower unit demand for NUCYNTA attributable to declines in both the long-acting and short-acting opioid prescription markets. In addition, Hurricanes Irma and Maria caused significant devastation and damage throughout Puerto Rico in 2017, including widespread flooding and power loss. As a result, we experienced delays in the manufacture, packaging and delivery of certain dosage strengths of NUCYNTA IR in the third quarter and NUCYNTA ER in the fourth quarters of 2017, from our manufacturer in Puerto Rico, which negatively impacted our results by ~~approximately~~ $83.04 million. Weas ~~also~~compared ~~experienced~~to ~~spot~~the ~~outages~~same ofperiod ~~certain NUCYNTA ER strengths~~ in ~~the first quarter of~~ 2018., Weprimarily ~~and~~due ~~Collegium may continue~~ to ~~experience~~unfavorable ~~such~~payer ~~further~~mix ~~outages~~and inincreased ~~the~~patient ~~future~~discount programs.

Zipsor net product sales for the year ended December 31, 2019 decreased by $3.9 million as compared to the same period in 2018, primarily due to increased patient discount programs and impact of short-dated product sales returns, offset partially by higher volume.

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We ceased recording product sales and related costs for NUCYNTA after commencing the Commercialization Agreement with Collegium on January 8, 2018. Product sales for the year ended December 31, 2019 reflect adjustments made for previously recorded sales reserve estimates. Product sales for the year ended December 31, 2018 reflect product sales solely between January 1 and January 8, 2018 and adjustments for previously recorded sales reserve estimates thereafter.

We ceased recording revenues and related costs associated with Lazanda after we divested the product to Slán in November 2017. Product sales for the year ended December 31, 2019 and 2018 reflect adjustments made for previously recorded sales reserve estimates.

We will cease recognizing product sales and related costs for Gralise effective the closing of the transaction to divest our rights, title and interest in and to Gralise to Alvogen on January 10, 2020.

Commercialization Agreement Revenue

We recognized revenue as a result of the Commercialization Agreement for the years ended December 31, 2019 and 2018 as follows (in thousands):



	Year ended December 31,
	2019			2018
Royalty revenue	$	118,636		$	100,038
Contract liability amortization ⁽¹⁾	2,791			—
Contract asset amortization, net	(3,596		)	—
Expense reimbursement	783			—
Inventory transfer	—			55,705
Total commercialization revenue	$	118,614		$	155,743

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

For the year ended December 31, 2019, we recognized commercialization revenues of $118.6 million related to the amended Commercialization Agreement with Collegium, effective January 1, 2019. Beginning January 1, 2019, royalties from Collegium were deemed to be variable consideration subject to the sales-based royalty exception related to intellectual property. Other components of revenue recognized by us from the Commercialization Agreement include the amortization of contract assets arising from the transfer of inventory to Collegium net of contract liabilities arising from the warrants and prepayments received, and variable consideration revenue for reimbursement of certain shared costs.

For the year ended December 31, 2018, we recognized commercialization revenues of $100.0 million related to the Commercialization Agreement with Collegium for the period January 8, 2018 through December 31, 2018. Royalty revenues under the original Commercialization Agreement, effective through December 31, 2018, were deemed to be fixed consideration recognized evenly over the contract term. In addition, we recognized $55.7 million related to the transfer of inventory upon closing in January 2018.

We will cease recognizing commercialization revenue and related costs for NUCYNTA effective the closing of the transaction to divest our rights, title and interest in and to the NUCYNTA franchise to Collegium on February 13, 2020.

Royalties & Milestone Revenue

In November 2010, we entered into a license agreement with Tribute Pharmaceuticals Canada Ltd. (now Nuvo Pharmaceuticals, Inc.) granting it the rights to commercially market CAMBIA in Canada. We receive royalties on net sales as well as certain one-time contingent milestone payments. During the year ended December 31, 2019, we recognized $2.1 million of revenue related to CAMBIA in Canada. The revenue recognized in 2019 included a $0.3 million one-time amendment fee and a $0.5 million milestone payment. During the year ended December 31, 2018, we recognized $0.8 million of revenue related to CAMBIA in Canada.

In October 2013, we sold our interests in royalty and milestone payments under our license agreements relating to our Acuform technology in the Type 2 diabetes therapeutic area to PDL BioPharma, Inc. (PDL) for $240.5 million. On August 2,

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~~Gralise. The~~2018, ~~decrease~~we insold ~~Gralise~~our ~~product~~remaining ~~sales~~interest ~~for~~in ~~the~~such ~~year~~payments ~~ended December 31, 2018 compared~~ to ~~2017~~PDL ~~was~~for ~~primarily~~$20.0 ~~due~~million. The to$20.0 ~~lower~~million ~~prescription~~of ~~demand~~revenue ~~and~~was ~~higher~~recognized ~~managed~~as ~~care~~royalty ~~rebates.~~revenue ~~The decrease in Gralise product sales~~ for the year ended December 31, ~~2017 compared to 2016 was primarily due to lower unit demand resulting, in part, from a decline in the number of sales representatives promoting Gralise~~2018.

~~CAMBIA. The~~In ~~increase~~July in2011, ~~CAMBIA~~we ~~product~~entered ~~sales~~into ~~for~~a ~~the~~collaboration ~~year~~and ~~ended~~license ~~December~~agreement ~~31,~~with ~~2018~~Ironwood ~~compared~~granting Ironwood a license for worldwide rights to ~~2017~~certain ~~was~~patents ~~primarily~~and ~~the~~other ~~result~~intellectual ofproperty ~~increased~~rights ~~prices.~~to ~~The~~our ~~increase~~Acuform indrug ~~CAMBIA~~delivery technology for IW‑3718, an Ironwood product ~~sales~~candidate under evaluation for refractory GERD. During the ~~year~~second ~~ended~~and ~~December~~third ~~31,~~quarters ~~2017 compared~~of to2018, ~~2016~~we ~~was~~recognized ~~primarily~~and collected a ~~result~~$5.0 ofmillion ~~lower~~contingent ~~managed~~milestone ~~care~~payment ~~rebates~~related ~~and~~to ~~lower~~the ~~co-pay~~dosing ~~assistance~~of ~~programs,~~the ~~partially~~first ~~offset~~patient byin ~~lower~~a ~~prescription~~Phase ~~demand~~3 trial for IW 3718.

Zipsor. The decrease in Zipsor product sales for the year ended December 31, 2018 compared to 2017 was primarily the result of reduced demand and increased product returns. The decrease in Zipsor product sales for the year ended December 31, 2017 as compared to the same period in 2016 was a result of reduced unit demand and increased product returns offset, in part, by price increases.

Lazanda. We ceased recording revenues and related costs associated with Lazanda after we divested the product to Slán in November 2017. Product sales for the year ended December 31, 2018 reflect adjustments made for previously recorded sales reserve estimates. The decrease in Lazanda product sales in 2017 as compared to 2016 is primarily a result of lower unit demand attributable to a decline in the Transmucosal Immediate Release Fentanyl (TIRF) prescription market and the cessation of promotion of Lazanda by our salesforce in May 2017 and the divestiture of Lazanda to Slán in November 2017 offset, in part, by price increases.

Pharmacy Benefit Manager. During the three months ended March 31, 2017, we established a reserve with respect to a dispute with a pharmacy benefit manager (PBM) over rebates relating to NUCYNTA ER, NUCYNTA and Gralise. The dispute relates to rebate claims submitted with respect to the year ended December 31, 2015 and the first half of 2016. As of December 31, 2016, we established a reserve for $1.0 million with respect to these claims, and had determined the likely amount payable on settlement would not be material to the consolidated financial statements. However, as a result of further communication with the PBM during the three months ended March 31, 2017, it became clear that our failure to pay the disputed amount would adversely impact our ability to maintain a favorable position on the PBM’s formulary. Accordingly, despite our belief that the claims in dispute were invalid, we increased the reserve against this matter by $4.7 million which was an offset to net sales for the three months ended March 31, 2017. We paid this amount in the fourth quarter of 2017. There was no impact to the 2018 financial statements as a result of this matter.

Royalties

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

License and other revenue

Ironwood Pharmaceuticals, Inc. In July 2011, we entered into a collaboration and license agreement with Ironwood granting Ironwood a license for worldwide rights to certain patents and other intellectual property rights to our Acuform drug delivery technology for IW‑3718, an Ironwood product candidate under evaluation for refractory GERD. During the second and third quarters of 2018, we recognized and collected, respectively, a $5.0 million contingent milestone payment related to the dosing of the first patient in a Phase 3 trial for IW 3718. There was no revenue under this agreement in 2017 or 2016.

Cost of Sales

Cost of sales consists of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs, royalties payable to third‑parties, inventory write‑downs, amortization of inventory write-ups associated with business acquisitions, product quality testing, internal employee costs related to the manufacturing process, distribution costs and shipping costs related to our product sales. Cost of sales excludes the amortization of intangible assets described separately below under “~~Amortization of~~ Intangible Assets.” ~~Total cost of sales for 2018, 2017 and 2016 was as follows:~~

Cost of sales decreased by $9.0 million from $18.5 million to $9.5 million for the year ended December 31, 2019 as compared to the same period in 2018, primarily driven by the inclusion of third-party royalties for NUCYNTA in 2018 and other NUCYNTA-related costs incurred in the first quarter of 2018. Pursuant to the terms of the Commercialization Agreement with Collegium, effective January 9, 2018, we no longer record product sales of NUCYNTA and NUCYNTA ER and, as a result, no longer incur or record the cost of sales of such products. The cost of sales in 2018 also includes $6.2 million related to the cost of inventory transferred to Collegium on closing of the Commercialization Agreement. Following the divestiture of Lazanda in November 2017, we no longer record Lazanda product sales or related cost of sales.

The cost of sales as a percentage of sales for Gralise, CAMBIA and Zipsor, combined for the years ended December 31, 2019 and 2018, was approximately 8.7% and 8.3%, respectively. The increase in cost of sales for the year ended December 31, 2019 is primarily driven by product mix, compared to the same periods in 2018.

Research and Development Expenses

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

Research and development expenses increased by $2.1 million from $8.0 million to $10.1 million in the year ended December 31, 2019 as compared to the same period in 2018, primarily due to increased personnel and clinical and regulatory costs in 2019, partially offset by higher consulting fees in 2018.

Selling, General and Administrative Expenses

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

Selling, general, and administrative expenses decreased by $10.3 million from $119.2 million to $108.9 million for the year ended December 31, 2019 as compared to the same period in 2018 primarily due to lower facilities and personnel costs as a result of the December 2017 restructuring plan, partially offset by the $10.1 million loss on disposal of equipment and other one-time nonrecurring costs in 2019.

In connection with the Multidistrict Opioid Litigation, the State Opioid Litigation and the Opioid-Related Requests and Subpoenas described in “Note 11. Commitments and Contingencies - Legal Matters” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we expect to incur additional costs and expenses related to our ongoing opioid-related litigation and investigations, which may be significant and which may increase in future periods.

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(in thousands)	2018			2017			2016
Cost of Sales	$	18,476		$	72,598		$	87,414
Dollar change from prior year	(54,122		)	(14,816		)	19,516
Percentage change from prior year	-74.6		%	-16.9		%	28.7		%

Intangible Assets

~~NUCYNTA~~Amortization ~~cost~~ of ~~sales~~intangible assets for the ~~twelve~~years ~~months~~ ended December 31, ~~2017~~2019 and ~~2016~~2018 was ~~approximately~~composed ~~25%. NUCYNTA cost~~ of ~~sales decreased~~ (in 2018, because pursuant to the terms of our Commercialization Agreement, beginning on January 8, 2018, we did not record net sales of NUCYNTA and NUCYNTA ER and, as a result, did not record the cost of sales of such products.thousands):

The cost of sales for Gralise, CAMBIA and Zipsor, combined, for the twelve months ended December 31, 2018, 2017 and 2016 was 8.3%, 7.7% and 9.3%, respectively.



	Year ended December 31,
	2019		2018
Amortization of intangible assets—NUCYNTA	$	94,301	$	94,301
Amortization of intangible assets—CAMBIA	5,136		5,136
Amortization of intangible assets—Zipsor	2,337		2,337
Total amortization of intangible assets	$	101,774	$	101,774

~~Research~~During ~~and~~the ~~Development~~year ~~Expenses~~ended &December ~~Acquired~~31, ~~in-process~~2019 ~~Research~~we ~~and~~recorded ~~Development~~an impairment loss of $189.8 million related to our NUCYNTA intangible, which represented the excess of the carrying amount over the fair value as of December 31, 2019.

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

(in thousands)	2018			2017			2016
Research and development expenses	$	8,042		$	13,718		$	32,631
Dollar change from prior year	(5,676		)	(18,913		)	15,090
Percentage change from prior year	-41.4		%	-58.0		%	86.0		%
Acquired in-process research and development	$	—		24,900			$	—

For the years ended December 31, 2019 and 2018, restructuring expenses and one-time termination costs incurred were $3.9 million and $20.6 million, respectively.

~~Research~~In ~~and~~November ~~development~~2019, ~~expenses~~the inCompany ~~2018~~announced ~~decreased~~an ~~compared~~acceleration of cost-saving initiatives that included a decision to ~~2017~~discontinue ~~primarily~~its asrelationship with its contract sales organization, changes to our internal processes and a ~~result~~reduction in the use of acertain ~~$6.1~~outside ~~million~~vendors ~~reduction~~and consultants, and the reorganization of certain functions resulting in ~~research~~a ~~related~~reduction toof ~~pediatric~~staff ~~trials~~at ~~for~~its ~~NUCYNTA~~headquarters ~~which~~office ~~completed~~and certain remote positions during the ~~second~~fourth quarter of ~~2017~~2019. In ~~January~~The 2019 cost-saving initiative was substantially complete as of ~~2018~~December 31, 2019. As a result, we ~~gave~~incurred to$3.9 ~~Grünenthal~~million ~~120~~in ~~days’~~charges ~~written~~related ~~notice~~to ofseverance ~~termination~~and ofother benefits during the ~~cebranopadol~~three ~~license~~months ~~agreement~~ended ~~and~~December ~~did~~31, ~~not~~2019. ~~incur~~We ~~related~~do ~~research~~not ~~and~~expect ~~development~~to incur significant costs related to ~~cebranopadol~~the in2019 ~~2018~~cost- ~~compared~~saving toinitiative ~~$0.9~~beyond ~~million in 2017~~2019.

~~Research~~During ~~and~~2018, ~~development~~we ~~expenses~~continued into ~~2017~~execute ~~decreased~~the ~~compared~~restructuring toplan ~~2016~~announced ~~primarily~~in asDecember a2017. ~~result~~We completed the termination of aour ~~reduction~~pain insales force during the ~~development~~first ~~costs~~quarter ~~associated~~of ~~with~~2018. ~~cebranopadol~~We relocated our corporate headquarters from Newark, ~~completion~~California ofto ~~certain~~Lake ~~portions~~Forest, ofIllinois, which reduced our ~~ongoing~~headquarters ~~pediatric~~office ~~trials~~space ~~for~~requirement ~~NUCYNTA~~by ~~during~~approximately 50%. During the ~~second~~first quarter of ~~2017~~2018, ~~and~~we ~~delays~~entered into an Office Lease pursuant to which we lease approximately 31,000 rentable square feet of space in Lake Forest, Illinois. Our initial tenant improvements in the ~~next~~space ~~steps~~were completed in August 2018 and we began occupying the space at that time. We incurred total costs of ~~those~~$33.8 ~~pediatric~~million ~~trials~~related to the December 2017 restructuring plan, of which $20. 6 million was recognized in 2018. The restructuring activities and related liabilities were completed and fully paid as of December 31, 2019.

~~The~~ Other acquired in-process research and development costs in 2017 represent the fair value of exclusive rights to market long-acting cosyntropin in the United States, which were acquired in November 2017. The fair value of the rights to market long-acting cosyntropin was estimated to be approximately $24.9 million and, in accordance with the applicable accounting rules, was recorded as “acquired in-process research and development” as long-acting cosyntropin was deemed to have no alternative future use. In February 2019, notification of acceptance for filing was received from the FDA for our 505(bExpense)~~(2)~~ NDA for our novel injectable formulation of long-acting cosyntropin. We, together with our development partner, seek approval for the use of this product as a diagnostic drug in the screening of patients presumed to have adrenocortical insufficiency. Cosyntropin was granted orphan drug status in infantile spasms by the FDA in August 2017.Income

~~Selling~~Other (expense) income for the years ended December 31, ~~General~~2019 and ~~Administrative~~2018 ~~Expenses~~was composed of the following (in thousands):



	Year ended December 31,
	2019			2018
Interest expense	$	(58,389	)	$	(68,881	)
Litigation settlement	—			62,000
Gain on debt extinguishment	26,385			—
Interest and other income	3,103			1,197
Change in fair value of Collegium warrants	845			—
Total other expense	$	(28,056	)	$	(5,684	)

Other expenses increased by $22.4 million from $5.7 million to $28.1 million for the year ended December 31, 2019 as compared to the same period in 2018 primarily due to the inclusion of the litigation Settlement Agreement with Purdue in

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(in thousands)	2018			2017			2016
Selling, general and administrative expenses	$	119,218		$	195,696		$	204,498
Dollar change from prior year	(76,478		)	(8,802		)	5,146
Percentage change from prior year	-39.1		%	-4.3		%	2.6		%

2018, offset by inclusion of income from the August 2019 Convertible Note Exchange, lower interest expense driven primarily by Senior Note principal payments, and net sublease income in 2019.

~~The~~Interest ~~decrease~~expense infor ~~selling,~~the ~~general~~years ~~and~~ended ~~administrative~~December 31, ~~expenses~~2019 inand 2018 ~~compared to 2017~~ was ~~primarily~~composed ~~related to the Commercialization Agreement, which resulted in the elimination~~ of ~~Nucynta related marketing costs and~~ the ~~termination~~following of our pain sales force during the first quarter of 2018, consisting of approximately 255 sales representative and sales manager positions, and our decision to significantly reduce our office staff and reduce our headquarters office space by approximately 50%. In addition, (in ~~2018, we incurred $2.25 million related to our obligations related to the commercialization of long-acting cosyntropin~~thousands):

The decrease in selling, general and administrative expense in 2017 as compared to 2016 was primarily due to our decision to pay no corporate bonus with respect to the year ended December 31, 2017, the reduction in the stock-based compensation expense and a $7.7 million reduction in the fair value of contingent consideration relating primarily to our Lazanda acquisition and, to a lesser extent, our CAMBIA and Zipsor acquisitions. The reduction in the fair value of contingent consideration relating to Lazanda reflects the continued deterioration of the market and the cessation of promotion of Lazanda by our salesforce in May 2017. The decrease in the fair value of contingent consideration relating to the CAMBIA and Zipsor acquisitions resulted from a reduction in our estimate of future sales of these products in light of the lower than expected results in 2017. Selling, general and administrative expenses in 2017 include a $3.4 million adjustment booked in the three months ended March 31, 2017 related to an increase in estimates associated with the branded prescription drug fee of which $1.4 million related to the year ended 2016.



	Year ended December 31,
	2019			2018
Interest payable on Senior Notes	$	25,559		$	38,242
Interest payable on Convertible Notes	8,958			8,624
Amortization of debt discounts and issuance costs relating to Senior Notes and Convertible Notes	23,764			21,877
Changes in fair value of contingent consideration	113			124
Other	(5		)	14
Total interest expense	$	58,389		$	68,881

~~Amortization~~The decrease in interest expense in 2019 compared to 2018 is due to principal repayments, offset in part by the impact of ~~Intangible~~increasing ~~Assets~~interest rates in 2018 and 2019.

(in thousands)	2018		2017		2016
Amortization of intangible assets—NUCYNTA	$	94,301	$	94,302	$	98,207
Amortization of intangible assets—CAMBIA	5,136		5,136		5,136
Amortization of intangible assets—Zipsor	2,337		2,337		2,337
Amortization of intangible assets—Lazanda	—		970		1,165
Total amortization of intangible assets	$	101,774	$	102,745	$	106,845

We expect interest expense to decrease in 2020 as a result of the Senior Notes repayment and Convertible Note repurchase in February 2020.

~~Following~~Income ~~our~~Tax ~~2017~~Benefit divestiture, no amortization expense was recorded relating to Lazanda subsequent to its divestiture. This resulted in lower amortization in 2018 compared to 2017 and was a partial driver of the decrease in amortization in 2017 compared to 2016. The reduction in amortization expense in 2017 as compared to 2016 was primarily due to the change in the estimated useful life of NUCYNTA in the fourth quarter of 2016. In September 2016, the United States District Court for the District of New Jersey ruled in favor of the Company in our patent litigation against all three filers of ANDAs for the NUCYNTA franchise. With the court’s ruling, we expect market exclusivity until December 2025 for NUCYNTA ER, NUCYNTA and NUCYNTA oral solution (~~an unmarketed form of NUCYNTA~~Expense)~~. In light of this court ruling, we reviewed the useful life of the NUCYNTA product rights and extended that from the previous estimate of June 2025 to December 2025.~~

During 2019, we recognized income tax benefit of approximately $5.3 million that represents an effective tax rate of 2.37% on income from continuing operations. The difference between income tax provision of $5.3 million and the tax at the statutory rate of 21.0% on current year operations is principally due to the change in the valuation allowance, the release of FIN 48 liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax allocation.

During 2018, we recognized income tax expense of approximately $1.1 million that represents an effective tax rate of 2.81% on income from continuing operations. The difference between income tax provision of $1.1 million and the tax at the statutory rate of 21.0% on current year operations is principally due the change in the valuation allowance and accrued interest and penalty related to uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents decreased by $68.8 million from $110.9 million to $42.1 million during the year ended December 31, 2019, primarily attributable to the $120.0 million in principal payments on our Senior Notes and $30.0 million of cash used in the exchange of our convertible notes, partially offset by the receipt of $32.0 million from the Purdue settlement and cash generated from operations.

Since inception and through December 31, 2019, we have financed our product development efforts and operations primarily from product sales, private and public sales of equity securities, including convertible debt securities, the proceeds of secured borrowings, the sale of rights to future royalties and milestones to PDL, upfront license, milestone and termination fees from collaborative and license partners, and product sales.

In April 2015, we issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for aggregate gross proceeds of approximately $562.0 million. As of December 31, 2019, the remaining balance of the Senior Notes was $162.5 million. In connection with the divestiture of Gralise and NUCYNTA we collected $450.0 million in upfront consideration and used proceeds to repay the outstanding principal of $162.5 million and as a result the Company had repaid in full all outstanding indebtedness, and terminated all commitments and obligations, under its Note Purchase Agreement. In connection with the termination of the Note Purchase Agreement, the Company was released from all security interests, liens and encumbrances under the Note Purchase Agreement. We were in compliance with our covenants with respect to the Senior Notes as of December 31, 2019 and through the period of the effective payoff on February 13, 2020.

In September 2014, we issued $345.0 million aggregate principal amount of convertible notes due 2021 (the 2021 Notes) resulting in net proceeds to us of $334.2 million. In August 2019, we exchanged $200.0 million aggregate principal

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~~Restructuring~~amount ~~Charges~~of the 2021 Notes for a combination of (a) its new $120.0 million aggregate principal amount of 5.00% Convertible Senior Notes due August 15, 2024 (the 2024 Notes), (b) an aggregate cash payment of $30.0 million, and (c) an aggregate of 15.8 million shares of our common stock. We did not receive any cash proceeds from the issuance of the 2024 Notes or the issuance of the shares of our common stock. On February 19, 2020, the Company utilized proceeds from the sale of Gralise and NUCYNTA to repurchase approximately $188.0 million aggregate principal amount of 2021 Notes and 2024 Notes.

(in thousands)	2018		2017		2016
Employee compensation costs	$	16,852	$	13,247	$	—
Fixed Asset disposals and accelerated depreciation of leasehold improvements	3,511		—		—
Other exit costs	238		—		—
Total restructuring costs	$	20,601	$	13,247	$	—

We may incur operating losses in future years. We believe that our existing cash combined with proceeds from the sale of Gralise and NUCYNTA, net of the settlement of existing debt and cash used in operating activities will be sufficient to fund our operations for the next twelve months from the date of this filing. We base this expectation on our current operating plan, which may change as a result of many factors.

In June 2017, we announced a reduction-in-force in order to streamline operations and achieve operating efficiencies. In December 2017, we continued our restructuring plans by initiating a company-wide restructuring designed to help position the Company for sustainable, long-term growth that we believe will align our staff and office locations to our strategy. These restructuring activities primarily focused on a reduction of our workforce. Pursuant to our restructuring plans, in February 2018, we eliminated our pain sales force, consisting of approximately 230 sales representative and 25 manager positions. We reduced the staff at our headquarters office during the second quarter of 2018. In the third quarter of 2018, we relocated our corporate headquarters from Newark, California to Lake Forest, Illinois and reduced our headquarters office space by 50%.

We expected to incur total costs related to the December 2017 restructuring plan, including costs incurred in 2017, to be in the range of $27.0 million to $33.0 million. For the year ended December 31, 2018 and 2017, restructuring expenses and one-time termination costs were $20.6 million and $13.2 million, respectively, and we expect to incur insignificant costs in 2019.

Other Income and Expense

(in thousands)	2018			2017			2016
Litigation settlement	$	62,000		$	—		$	—
Gain on divestiture of Lazanda	—			17,064			—
Interest and other income	1,197			681			485
Loss on prepayment of Senior Notes	—			(5,938		)	(5,777		)
Interest expense	$	(68,881	)	$	(73,552	)	$	(83,719	)
	$	(5,684	)	$	(61,745	)	$	(89,011	)

For the year ended December 31, 2018, other income includes the Settlement Agreement with the Purdue, as further described in “Item 8. Financial Statements and Supplemental Data - Note 12, “Commitments and Contingencies - Legal Matters”. The total settlement amount was $62.0 million of which $30.0 million was paid during the three months ended September 30, 2018 and the remaining $32.0 million was paid in January 2019.

For the year ended December 31, 2017, we recognized a gain related to the divestiture of Lazanda of $17.1 million.

During the year ended December 31, 2018 we made $82.5 million of principal payments of the Senior Notes. Additionally, we prepaid and retired $100.0 million of principal of the Senior Notes in April 2017 and $10.0 million of principal of the Senior Notes in November 2017. In April 2016, we prepaid and retired $100.0 million of the Senior Notes. The loss on prepayment of Senior Notes in 2017 and 2016 represents the prepayment fees paid to the lender as well as the acceleration of the unamortized balances of the debt discount and debt issuance costs associated with these prepayments of our debt.

The decrease in interest expense in 2018 compared to 2017 and in 2017 as compared to 2016 is also due to these principal prepayments, offset in part by the impact of increasing interest rates in 2017 and 2018.

Income Tax Provision (Benefit)

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statutory rate of 21% on current year operations is principally due the change in the valuation allowance and accrued interest and penalty related to uncertain tax positions.

During 2017, we recorded a benefit from income taxes of approximately $1.4 million that represents an effective tax rate of 1.38% on income from continuing operations. The difference between the income tax benefit of $1.4 million and the tax at the statutory rate of 35% on current year operations is principally due to the change in valuation allowance and the release of liabilities with respect to uncertain tax positions due to the lapse of State statute of limitations.

During 2016, we recognized income tax expense of approximately $24.2 million that represents an effective tax rate of 37.5% on income from continuing operations. The difference between income tax expense of $24.2 million and the tax benefit at the statutory rate of 35% was principally due to the recording of a full valuation allowance against our net deferred tax assets in the fourth quarter of 2016.

LIQUIDITY AND CAPITAL RESOURCES

	As of December 31,
(in thousands)	2018		2017
Cash, cash equivalents and short-term investments	$	110,949	$	128,089

The decrease in cash, cash equivalents and short-term investments during 2018 is primarily attributable to the repayment of $82.5 million of secured indebtedness. These payments were partially offset by the cash generated from the settlement of the Purdue litigation which resulted in a $62.0 million gain, of which $30.0 million was received in 2018, the sale of PDL royalties for $20.0 million, the milestone royalty received from Ironwood of $5.0 million and cash generated from operations. We made a scheduled principal payment of secured indebtedness of $25.0 million in January 2019 and we are required to make additional payments of $55.0 million in April 2019 and $20.0 million quarterly thereafter, with a final payment of $62.5 million in April 2021.

Since inception and through December 31, 2018, we have financed our product development efforts and operations primarily from product sales, private and public sales of equity securities, including convertible debt securities, the proceeds of secured borrowings, the sale of rights to future royalties and milestones to PDL, upfront license, milestone and termination fees from collaborative and license partners, and product sales. In April 2015, we issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for aggregate gross proceeds of approximately $562.0 million. In September 2014, we issued $345.0 million aggregate principal amount of convertible notes due 2021 (the Convertible Notes) resulting in net proceeds to us of $334.2 million.

During January 2019, we entered into a Fourth Amendment to Note Purchase Agreement (the “Amendment”) with respect to the Note Purchase Agreement, dated as of March 12, 2015, between us, the other credit parties party thereto, the purchasers party thereto and Deerfield. Pursuant to the Amendment, the minimum EBITDA covenant was replaced with a senior secured debt leverage ratio covenant and a minimum net sales covenant, the prepayment premium was adjusted to be 3% of the principal amount of notes prepaid on or prior to April 14, 2020 and 1% of the principal amount of notes prepaid thereafter, flexibility to sell certain royalty assets and/or modify the terms thereof was added, certain definitions were amended and certain other amendments were made.

We were in compliance with our covenants with respect to the Senior Notes as of December 31, 2018. While we are currently in compliance, and anticipate continued compliance with such covenants, we may seek to refinance or restructure our debt, sell assets or obtain additional capital, each of which may be on terms that may be onerous, highly dilutive or disruptive to our business. Any prepayment of the Senior Notes would be subject to a prepayment fee of up to 3% of the principal amount of the Senior Notes prepaid. In addition, in connection with any refinancing of our debt, we would also accelerate the recognition of the balance of the unamortized debt discount and the debt issuance costs as of the date of any refinancing.

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

Our cash needs may vary materially from our current expectations because of numerous factors, including:

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• payments from Collegium pursuant to our Commercialization Agreement;


•	acquisitions or licenses of complementary businesses, products, technologies or companies;


•	sales of our marketed products;

• expenditures related to our commercialization of ~~Gralise,~~our ~~CAMBIA, and Zipsor~~products;

• expenditures related to our product candidates;


•	milestone and royalty revenue we receive under our collaborative development arrangements;


•	interest and principal payments on our current and future indebtedness;


•	financial terms of definitive license agreements or other commercial agreements we may enter into; and


•	changes in the focus and direction of our business strategy and/or research and development programs.

The inability to raise any additional capital that may be required to fund our future operations or product acquisitions and strategic transactions which we may pursue could have a material adverse effect on our company.

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

	Year ended December 31,
(in thousands)	2018			2017			2016
	2019			2018
Cash provided by operating activities	$	72,497		$	62,167		71,263
Net cash provided by operating activities	$	90,475		$	72,497
Cash (used in) provided by investing activities	(7,082		)	57,894			45,536
Net cash (used in) provided by investing activities	(1,481		)	(7,082		)
Cash (used in) financing activities	(81,350		)	(110,886		)	(100,174		)
Net cash used in financing activities	(157,836		)	(81,350		)
Net (decrease) increase in cash and cash equivalents	$	(1568,~~935~~842	)	$	9(15,~~175~~935	)	$	~~16,625~~

Cash Flows from Operating Activities

Cash provided by operating activities was $7290.5 million in ~~2018,~~2019 and $6272.25 million in ~~2017~~2018. ~~and~~The increase in cash provided by operating activities in 2019 compared to the same period in 2018 is primarily due to the receipt of $7132.30 million from the Purdue settlement in ~~2016.~~2019 partially offset by changes in the working capital accounts.

The increase in Cash provided by operating activities in 2018 compared to 2017 is due to increased net income from the settlement of the Purdue Litigation, the sale of royalties to PDL and the milestone payment from Ironwood. The decrease in Cash provided by operating activities in 2017, as compared to 2016, is a result lower sales as compared to 2016.

Cash Flows from Investing Activities

Cash used in investing activities decreased in ~~2018~~2019 ~~relates~~compared to ~~purchases~~the ~~and~~same ~~property~~period ~~and equipment related primarily to our new headquarters office space~~ in ~~Lake Forest~~2018, ILprimarily ~~and~~due ~~also~~to ~~includes~~the a $3.0 million investment in a ~~company~~convertible ~~engaged~~instrument ~~in medical research. Cash provided by investing activities during 2017 was approximately $57.9 million~~ and ~~primarily~~higher ~~relates~~purchases ~~to the timing~~ of ~~maturity~~property ~~of marketable securities in anticipation of the prepayment of debt in April 2017. Cash provided by investing activities during 2016 was approximately $45.5 million~~ and ~~primarily~~equipment ~~relates to the timing of maturity of marketable securities~~ in ~~anticipation of the prepayment of debt in April 2016~~2018.

Cash Flows from Financing Activities

~~Cash~~The increase in cash used in financing activities in 2019 compared to 2018 is primarily ~~related~~due to the $8237.5 million of ~~repayments~~higher ofprincipal payments on our Senior Notes. ~~Cash used in financing activities during 2017 was approximately $110.9 million~~ and ~~reflects the prepayment of~~ $~~110~~30.0 million ~~of our Senior Notes as well as an associated prepayment fees of $4.4 million~~ in ~~2017~~cash ~~which was partially off-set by proceeds from employee stock option exercises and purchase of common stock under the employee stock purchase plan. Cash~~ used in ~~financing activities during 2016 was approximately $100.2 million and reflects~~ the ~~prepayment~~Convertible ofNote ~~$100.0~~Exchange ~~million of our Senior Notes as well as an associated prepayment fee of $5.0 million~~ in ~~April 2016 which was partially off-set by proceeds from employee stock option exercises and purchase of common stock under the employee stock purchase plan~~2019.

Contractual Obligations

As of December 31, ~~2018~~2019, our contractual obligations are shown in the following table (in thousands):

5149

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							More than
(in thousands)	1 Year		2 - 3 Years		4 - 5 Years		5 Years		Total
	1 Year		2 - 3 Years		4 - 5 Years		5 Years		Total
Senior Notes—principal	$	120,000	162,500		—		—		$	282,500
Senior Notes—principal(1)	$	80,000	$	82,500	$	—	$	—	$	162,500
Senior Notes—interest	26,125		16,993		—		—		43,118
Senior Notes—interest(1)	13,922		2,244		—		—		16,166
Convertible Debt—principal	—		345,000				—		345,000
2.50% Convertible Notes due 2021—principal(1)	—		145,000		—		—		145,000
Convertible Debt—interest	8,625		17,250		—		—		25,875
2.50% Convertible Notes due 2021—interest(1)	3,625		3,625		—		—		7,250
Operating leases(1)	2,624		4,848		2,820		—		10,292
5.00% Convertible Notes due 2024—principal(1)	—		—		120,000		—		120,000
Purchase commitments	3,000		3,000		—		—		6,000
5.00% Convertible Notes due 2024—interest(1)	6,250		12,000		12,000		—		30,250
Total	$	160,374	$	549,591	$	2,820	$	—	$	712,785
Operating leases(2)	2,431		4,511		632		—		7,574
Purchase commitments(3)	5,966		—		—		—		5,966
Total	$	112,194	$	249,880	$	132,632	$	—	$	494,706

(1) ~~Amounts~~In ~~represent~~connection ~~payments~~with ~~under~~the adivestiture ~~non‑cancelable~~of ~~office~~Gralise and ~~laboratory~~NUCYNTA, ~~lease~~we ~~and~~collected ~~under~~approximately an$450.0 ~~operating~~million ~~lease~~in ~~for~~upfront ~~vehicles~~consideration and used byproceeds to repay the outstanding principal of $162.5 million of Senior Notes as of February 13, 2020 and repurchase $102.5 million and $85.5 million of 2021 Notes and 2024 Notes, respectively, on February 19, 2020. This table reflects the remaining interest and principal due on our ~~sales~~Senior ~~force~~Notes, 2021 Notes, and 2024 Notes as of December 31, 2019.

At(2) ~~December~~Amounts ~~31,~~represent payments under non‑cancelable operating leases including office space and sales fleet vehicles. In 2018, we ~~had~~relocated ~~non‑cancelable~~our ~~purchase~~corporate ~~orders~~headquarters ~~related~~from Newark, California to ~~consulting~~Lake ~~services~~Forest, Illinois and subsequently entered into two subleases which, together, account for the entirety of the Newark facility.

~~Our~~(3) ~~corporate~~As ~~headquarters~~of isDecember ~~located in Lake Forest, Illinois, where we lease approximately~~ 31,~~000 square~~ ~~feet of office space (the Lake Forest Lease). Our prior corporate headquarters was located in Newark~~2019, ~~California where~~ we ~~entered~~had ~~into~~non‑cancelable anpurchase ~~office~~orders and ~~laboratory~~minimum ~~lease~~purchase ~~agreement~~obligations toof ~~lease~~ approximately ~~52,500 rentable square feet commencing in December 2012 and approximately 8,000 additional rentable square feet commencing in July 2015 (the Newark Lease)~~$3. ~~Following~~6 ~~the~~million ~~relocation~~under of our ~~corporate~~manufacturing ~~headquarters~~agreements. ~~from Newark~~Additionally, ~~California~~we tohad ~~Lake~~non‑cancelable ~~Forest,~~purchase ~~Illinois,~~orders werelated ~~entered~~to ~~into~~consulting ~~subleases~~services ~~for~~of ~~the~~approximately ~~Newark~~$2.4 ~~facility~~million. ~~For~~ ~~additional~~The ~~information~~amounts ~~regarding~~disclosed ~~the~~only ~~Lake~~represent ~~Forest~~non-cancelable ~~Lease~~purchase ~~and the Newark Lease, see “Item 8~~orders. ~~Financial~~Actual ~~Statements~~purchases ~~and~~are ~~Supplementary~~expected ~~Data~~to -exceed ~~Note~~these 12amounts. ~~Commitments and Contingencies.”~~

OFF‑BALANCE SHEET ARRANGEMENTS

~~None~~We did not have any off-balance sheet arrangements as of December 31, 2019.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See “Item 8. Financial Statements and Supplemental Data - Note 1,. “Organization and Summary of Significant Accounting Policies” for additional information on recent accounting pronouncements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We ~~had~~previously ~~cash~~were subject to interest rate fluctuation exposure through our senior secured notes (Senior Notes), pursuant to the Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and ~~cash~~all ~~equivalents~~subsequent ~~totaling~~amendments ~~$110~~to the Note Purchase Agreement, which bear a variable interest rate.9 ~~million~~On asFebruary 13, 2020, the Company repaid in full its outstanding aggregate principal amount of ~~December~~Senior Notes. As of December 31, ~~2018~~2019, we had $265.0 Amillion ~~portion~~aggregate principal amount of ~~our~~convertible ~~cash~~senior notes outstanding, which are fixed rate instruments, and ~~cash~~therefore, ~~equivalents~~any ~~were~~significant ~~invested~~changes in ~~corporate~~interest ~~debt~~rates ~~securities~~would ~~and~~not ~~money~~have ~~market~~a ~~funds.~~material ~~Cash~~impact ~~and~~on ~~cash~~our ~~equivalents~~financial ~~are~~position ~~held~~and ~~for~~results ~~working~~of ~~capital purposes~~operations.

~~We are subject to interest rate fluctuation exposure through our borrowings under the Senior Secured Credit Facility and our investment in money market accounts which bear a variable interest rate~~. Borrowings under the Senior Secured Credit Facility bear interest at a rate equal to the lesser of three month LIBOR plus 9.75% per annum, subject to a 1.0% LIBOR floor and 12.95%. Current LIBOR rates are above the 1.0% LIBOR floor, and the interest rate on our borrowings under the Senior Secured Credit Facility is currently 12.15% per annum. An increase in the three month LIBOR of 100 basis points above the current three‑month LIBOR rates would increase our interest expense by approximately $1.7 million for 2019, assuming we timely make the scheduled principal payments. Such increase is limited as our interest rate for our Senior Secured Credit Facility is capped at 12.95%. As of December 31, 2018, we had $345 million aggregate principal amount of convertible senior notes outstanding, which are fixed rate instruments.

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

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Foreign Currency Risk

We have not had any significant transactions in foreign currencies, nor did we have any significant balances that were due or payable in foreign currencies at December 31, ~~2018~~2019. Accordingly, significant changes in foreign currency rates would not have a material impact on our financial position and results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ASSERTIO THERAPEUTICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, ~~2018~~2019 and ~~2017 Consolidated Statements of Operations for the years ended December 31,~~ 2018, ~~2017 and 2016~~ Consolidated Statements of Comprehensive Income ~~/ Loss~~ for the years ended December 31, ~~2018~~2019, ~~2017~~2018 and ~~2016~~2017 Consolidated Statements of Shareholders’ Equity for the years ended December 31, ~~2018~~2019, ~~2017~~2018 and ~~2016~~2017 Consolidated Statements of Cash Flows for the years ended December 31, ~~2018~~2019, ~~2017~~2018 and ~~2016~~2017 Notes to Consolidated Financial Statements Schedule II: Valuation and Qualifying Accounts

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Assertio Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Assertio Therapeutics, Inc. (the Company) as of December 31, ~~2018~~2019 and ~~2017~~2018, the related consolidated statements of ~~operations,~~ comprehensive income ~~(loss)~~, shareholders' equity and cash flows for each of the three years in the period ended December 31, ~~2018~~2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2018~~2019 and ~~2017~~2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2018~~2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, ~~2018~~2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 11 10, ~~2019~~2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1997.

Chicago, Illinois

March 11 10, ~~2019~~ 2020

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2018			2017
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	~~110~~42,~~949~~107		$	~~126~~110,~~884~~949
Short-term investments	—			1,205
Accounts receivable, net	42,744			37,211
Accounts receivable, net	37,211			72,482
Inventories, net	3,412			3,396
Inventories, net	3,396			13,042
Prepaid and other current assets	15,688			56,551
Prepaid and other current assets	56,551			17,238
Total current assets	103,951			208,107
Total current assets	208,107			230,851
Property and equipment, net	3,497			13,064
Property and equipment, net	13,064			13,024
Intangible assets, net	400,535			692,099
Intangible assets, net	692,099			793,873
Investments	13,064			11,784
Investments	11,784			—
Other long-term assets	6,123			7,812
Other long-term assets	7,812			869
Total assets	$	527,170		$	932,866
Total assets	$	932,866		$	1,038,617
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	616,~~138~~193		$	146,~~732~~138
Accrued rebates, returns and discounts	7558,~~759~~943			~~135~~75,~~828~~759
Accrued liabilities	3118,~~361~~948			6031,~~496~~361
Income taxes payable	—			126
Current portion of Senior Notes	80,000			120,000
Current portion of Senior Notes	120,000			82,500
Interest payable	8,375			11,645
Contingent consideration liability, current portion	—			156
Other current liabilities	2,094			1,133
Interest payable	11,645			13,220
Total current liabilities	184,553			246,036
Other current liabilities	1,133			3,522
Contingent consideration liability	168			1,038
Total current liabilities	246,036			310,580
Senior Notes	76,443			158,309
Contingent consideration liability, long-term portion	1,038			1,457
Convertible Notes	194,815			287,798
Senior Notes	158,309			274,720
Other long-term liabilities	13,233			19,350
Convertible Notes	287,798			269,510
Total liabilities	469,212			712,531
Other long-term liabilities	19,350			12,842
Total liabilities	712,531			869,109
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized; 64,185,224 and 63,400,348 shares issued and outstanding at December 31, 2018 andDecember 31, 2017, respectively	6			6
Common stock, $0.0001 par value, 200,000,000 shares authorized; 80,888,134 and 64,185,224 shares issued and outstanding at December 31, 2019 andDecember 31, 2018, respectively	8			6
Additional paid-in capital	~~402~~457,~~934~~751			~~389~~402,~~015~~934
Accumulated deficit	(~~182~~399,~~600~~801		)	(~~219~~182,~~508~~600		)
Accumulated other comprehensive loss	(5—		)	(5		)
Total shareholders’ equity	~~220~~57,~~335~~958			~~169~~220,~~508~~335
Total liabilities and shareholders' equity	$	~~932~~527,~~866~~170		$	1932,~~038,617~~866

The accompanying notes are an integral part of these consolidated financial statements.

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME

(in thousands except per share data)

	Year Ended December 31,
	2018			2017			2016
	2019			2018			2017
Revenues:
Product sales, net	$	~~129~~108,~~966~~806		$	~~379~~129,~~880~~966		$	~~455~~379,~~066~~880
Commercialization agreement, net	~~155~~118,~~743~~614			—155,743			—
Royalties and milestones	262,~~061~~084			~~844~~26,061			~~831~~844
Total revenues	~~311~~229,~~770~~504			~~380~~311,~~724~~770			~~455~~380,~~897~~724
Costs and expenses:
Cost of sales (excluding amortization of intangible assets)	189,~~476~~505			7218,~~598~~476			8772,~~414~~598
Research and development expenses	810,~~042~~106			138,~~718~~042			3213,~~631~~718
Acquired in-process research and development	—			~~24,900~~—			—24,900
Selling, general and administrative expenses	~~119~~108,~~218~~866			~~195~~119,~~696~~218			~~204~~195,~~498~~696
Amortization of intangible assets	101,774			~~102~~101,~~745~~774			~~106~~102,~~845~~745
Restructuring charges	20,601			13,247			—
Loss on impairment of intangible asset	189,790			—			—
Total costs and expenses	268,111			422,904			431,388
Restructuring charges	3,891			20,601			13,247
Income (loss) from operations	43,659			(42,180		)	24,509
Total costs and expenses	423,932			268,111			422,904
(Loss) income from operations	(194,428		)	43,659			(42,180		)
Other income (expense):
Litigation settlement	~~62,000~~—			—62,000			—
Gain on divestiture of Lazanda	—			17,064			—
Gain on debt extinguishment	26,385			—			—
Interest and other income	1,197			681			485
Other income, net	3,948			1,197			681
Loss on prepayment of Senior Notes	—			(5,938		)	(5,777		)
Interest expense	(58,389		)	(68,881		)	(73,552		)
Interest expense	(68,881		)	(73,552		)	(83,719		)
Gain on divestiture of Lazanda	—			—			17,064
Income (loss) before income taxes	37,975			(103,925		)	(64,502		)
Loss on prepayment of Senior Notes	—			—			(5,938		)
Income tax (expense) benefit	(1,067		)	1,429			(24,218		)
Total other expense	(28,056		)	(5,684		)	(61,745		)
Net income (loss)	$	36,908		$	(102,496	)	$	(88,720	)
Net (loss) income before income taxes	(222,484		)	37,975			(103,925		)
Basic net income (loss) per share	$	0.58		$	(1.63	)	$	(1.45	)
Income tax benefit (expense)	5,283			(1,067		)	1,429
Diluted net income (loss) per share	$	0.57		$	(1.63	)	$	(1.45	)
Net (loss) income	$	(217,201	)	$	36,908		$	(102,496	)
Shares used in computing basic net income (loss) per share	63,794			62,702			61,297
Other comprehensive income:
Shares used in computing diluted net income (loss) per share	64,208			62,702			61,297
Unrealized gain on available-for-sale securities, net of tax	—			—			14
Comprehensive (loss) income	$	(217,201	)	$	36,908		$	(102,482	)
Basic net (loss) income per share	$	(3.07	)	$	0.58		$	(1.63	)
Diluted net (loss) income per share	$	(3.07	)	$	0.57		$	(1.63	)
Shares used in computing basic net (loss) income per share	70,716			63,794			62,702
Shares used in computing diluted net (loss) income per share	70,716			64,208			62,702

The accompanying notes are an integral part of these consolidated financial statements.

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / LOSS

(in thousands)

	Year Ended December 31,
	2018		2017			2016
Net income (loss)	$	36,908	$	(102,496	)	$	(88,720	)
Unrealized gain on available-for-sale securities, net of tax	—		14			35
Comprehensive income (loss)	$	36,908	$	(102,482	)	$	(88,685	)

The accompanying notes are an integral part of these consolidated financial statements.

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

	Common Stock				AdditionalPaid-InCapital			AccumulatedEarnings(Deficit)			AccumulatedOtherComprehensiveLoss			Shareholders’Equity
	Shares	Amount
Balances at December 31, 2015	60,787	$	264,511		$	78,622		$	(28,024	)	$	(54	)	$	315,055
Reclassification due to reincorporation		(264,505		)	264,505
Balances at December 31, 2015	60,787	6			343,127			(28,024		)	(54		)	315,055
Issuance of common stock upon exercise of options	716	—			6,693			—			—			6,693
Issuance of common stock under employee stock purchase plan	201	—			3,258			—			—			3,258
Issuance of common stock in conjunction with vesting of restricted stock units	262	—			—			—			—			—
Stock-based compensation	—	—			17,172			—			—			17,172
Shares withheld for payment of employee's withholding tax liability	—	—			(3,342		)	—			—			(3,342		)
Windfall tax benefit	—	—			637			—			—			637
Net loss	—	—			—			(88,720		)	—			(88,720		)
Unrealized gain on available-for-sale securities	—	—			—			—			35			35
Balances at December 31, 2016	61,966	$	6		$	367,545		$	(116,744	)	$	(19	)	$	250,788
Issuance of common stock upon exercise of options	1,001	—			6,979			—			—			6,979
Issuance of common stock under employee stock purchase plan	262	—			1,960			—			—			1,960
Issuance of common stock in conjunction with vesting of restricted stock units	171	—			—			—			—			—
Stock-based compensation	—	—			13,016			—			—			13,016
Cumulative effect adjustment from adoption of ASU No. 2016-09	—	—			268			(268		)	—			—
Shares withheld for payment of employee's withholding tax liability	—	—			(753		)	—			—			(753		)
Net loss	—	—			—			(102,496		)	—			(102,496		)
Unrealized gain on available-for-sale securities	—	—			—			—			14			14
Balances at December 31, 2017	63,400	$	6		$	389,015		$	(219,508	)	$	(5	)	$	169,508
Issuance of common stock upon exercise of options	278	—			1,493			—			—			1,493
Issuance of common stock under employee stock purchase plan	107	—			527			—			—			527
Issuance of common stock in conjunction with vesting of restricted stock units	400	—			—			—			—			—
Stock-based compensation	—	—			12,585			—			—			12,585
Shares withheld for payment of employee's withholding tax liability	—	—			(686		)	—			—			(686		)
Net income	—	—			—			36,908			—			36,908
Balances at December 31, 2018	64,185	$	6		$	402,934		$	(182,600	)	$	(5	)	$	220,335
Issuance of common stock upon exercise of options	14	—			25			—			—			25
Issuance of common stock under employee stock purchase plan	169	—			226			—			—			226
Issuance of common stock in conjunction with vesting of restricted stock units	703	—			—			—			—			—
Issuance of common stock in conjunction with the Convertible Note Exchange	15,817	2			25,305			—			—			25,307
Reacquisition of equity component of 2021 Notes, net of tax loss of $1,445	—	—			(4,763		)	—			—			(4,763		)
Equity component of issued 2024 Notes, net of tax benefit of $7,212	—	—			23,999			—			—			23,999
Stock-based compensation	—	—			10,596			—			—			10,596
Shares withheld for payment of employee's withholding tax liability	—	—			(571		)	—			—			(571		)
Unrealized gain on available-for-sale securities	—	—			—			—			5			5
Net loss	—	—			—			(217,201		)	—			(217,201		)
Balances at December 31, 2019	80,888	$	8		$	457,751		$	(399,801	)	$	—		$	57,958

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The accompanying notes are an integral part of these consolidated financial statements.

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ASSERTIO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Year Ended December 31,
	2019			2018			2017
Operating Activities
Net (loss) income	$	(217,201	)	$	36,908		$	(102,496	)
Adjustments for non-cash items:
Depreciation and amortization	102,946			106,426			105,502
Accretion of debt discount and debt issuance costs	23,764			21,877			19,415
Provisions for inventory and other assets	5,304			598			2,673
Loss on impairment of intangible assets	189,790			—			—
Loss (gain) on disposal of equipment	10,076			669			(271		)
Stock-based compensation	10,596			12,585			13,016
Intraperiod tax allocations	(5,767		)	—			—
(Gain) loss on debt extinguishment and prepayment	(26,385		)	—			5,938
Recurring fair value measurement of assets and liabilities	(1,715		)	(391		)	(8,024		)
Gain on divestiture of Lazanda	—			—			(17,064		)
Acquired in-process research and development	—			—			24,900
Other	(327		)	1,023			240
Changes in assets and liabilities:
Accounts receivable	(5,533		)	35,271			30,107
Inventories	(316		)	9,048			(1,873		)
Prepaid and other assets	40,769			(56,136		)	(5,114		)
Accounts payable and other accrued liabilities	(15,146		)	(33,610		)	(6,436		)
Accrued rebates, returns and discounts	(16,816		)	(60,069		)	4,292
Interest payable	(3,270		)	(1,576		)	(2,705		)
Income taxes payable	(294		)	(126		)	67
Net cash provided by operating activities	90,475			72,497			62,167
Investing Activities
Purchases of property and equipment	(1,481		)	(5,507		)	(666		)
Investment in convertible instrument	—			(3,000		)	—
Proceeds from disposal of property and equipment	—			145			280
Purchases of marketable securities	(12,065		)	—			(8,277		)
Proceeds from sale of other assets	—			80			66,557
Maturities of marketable securities	4,209			—			—
Sales of marketable securities	7,856			1,200			—
Net cash (used in) provided by investing activities	(1,481		)	(7,082		)	57,894
Financing Activities
Payment of contingent consideration liability	—			(184		)	(1,673		)
Repayment of Senior Notes	(120,000		)	(82,500		)	(110,000		)
Fees for early repayment and modifications of Senior Notes	—			—			(7,400		)
Fees for modification of Senior Notes	(3,249		)	—			—
Payments in connection with debt extinguishment	(30,000		)	—			—
Convertible notes issuance costs	(4,268		)	—			—
Proceeds from issuance of common stock	251			2,020			8,940
Shares withheld for payment of employee's withholding tax liability	(570		)	(686		)	(753		)
Net cash used in financing activities	(157,836		)	(81,350		)	(110,886		)
Net (decrease) increase in cash and cash equivalents	(68,842		)	(15,935		)	9,175
Cash and cash equivalents at beginning of year	110,949			126,884			117,709
Cash and cash equivalents at end of period	$	42,107		$	110,949		$	126,884
Supplemental Disclosure of Cash Flow Information
Net cash paid (received) for income taxes	$	4,401		$	6,472		$	121
Cash paid for interest	$	37,788		$	48,440		$	55,542
Non-cash consideration for in-process research and development	$	—		$	—		$	19,900
Accrued research and development	$	—		$	—		$	5,000
Capital expenditures incurred but not yet paid	$	500		$	212		$	—

	Year Ended December 31,
	2018			2017			2016
Operating Activities
Net income (loss)	$	36,908		$	(102,496	)	$	(88,720	)
Adjustments for non-cash items:
Depreciation and amortization	106,426			105,502			109,375
Accretion of debt discount and debt issuance costs	21,877			19,415			17,673
Loss on prepayment of Senior Notes	—			5,938			5,777
Provision for inventory obsolescence	598			2,673			1,179
(Gain) loss on disposal of property and equipment	669			(271		)	—
Stock-based compensation	12,585			13,016			17,172
Change in fair value of contingent consideration	(391		)	(8,024		)	1,637
Deferred income taxes	—			—			23,632
Gain on divestiture of Lazanda	—			(17,064		)	—
Acquired in-process research and development	—			24,900			—
Other	1,023			240			611
Changes in assets and liabilities:
Accounts receivable	35,271			30,107			(30,902		)
Inventories	9,048			(1,873		)	(3,718		)
Prepaid and other assets	(56,136		)	(5,114		)	(2,464		)
Income taxes receivable	—			—			6,359
Accounts payable and other accrued liabilities	(33,610		)	(6,436		)	5,862
Accrued rebates, returns and discounts	(60,069		)	4,292			10,478
Interest payable	(1,576		)	(2,705		)	(2,747		)
Income taxes payable	(126		)	67			59
Net cash provided by operating activities	72,497			62,167			71,263
Investing Activities
Purchases of property and equipment	(5,507		)	(666		)	(2,860		)
Investment in convertible instrument	(3,000		)	—			—
Proceeds from disposal of property and equipment	145			280			—
Purchases of marketable securities	—			(8,277		)	(68,818		)
Proceeds from sale of other assets	80			66,557			115,207
Sales of marketable securities	1,200			—			2,007
Net cash provided (used in) by investing activities	(7,082		)	57,894			45,536
Financing Activities
Payment of contingent consideration liability	(184		)	(1,673		)	(1,783		)
Repayment of Senior Notes	(82,500		)	(110,000		)	(100,000		)
Fees for early repayment and modifications of Senior Notes	—			(7,400		)	(5,000		)
Proceeds from issuance of common stock	2,020			8,940			9,951
Shares withheld for payment of employee's withholding tax liability	(686		)	(753		)	(3,342		)
Net cash (used in) financing activities	(81,350		)	(110,886		)	(100,174		)
Net increase (decrease) in cash and cash equivalents	(15,935		)	9,175			16,625
Cash and cash equivalents at beginning of year	126,884			117,709			101,084
Cash and cash equivalents at end of period	$	110,949		$	126,884		$	117,709
Supplemental Disclosure of Cash Flow Information
Net cash paid (received) for income taxes	$	6,472		$	121		$	(14,425	)
Cash paid for interest	$	48,440		$	55,542		$	71,093
Non-cash consideration for in-process research and development	$	—		$	19,900		$	—
Accrued research and development	$	—		$	5,000		$	—
Capital expenditures incurred but not yet paid	$	212		$	—		$	402

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

~~Assertio~~Our ~~is a specialty pharmaceutical company focused on neurology, orphan and specialty medicines. The~~ Company’s ~~current specialty pharmaceutical business includes the following three products which the Company markets in the U.S.:~~

•Assertio ~~Gralise®~~Therapeutics, Inc. (~~gabapentin~~Assertio or the Company), is a ~~once~~leading ~~daily~~diversified, ~~product~~specialty ~~for~~pharmaceutical ~~the~~company ~~management~~focused ofon ~~postherpetic~~distinctive ~~neuralgia~~products ~~(PHN)~~that offer enhanced therapeutic options for patients in need, ~~that~~while ~~was~~maintaining ~~launched~~the highest ethical standards in ~~October~~all ~~2011~~our business practices.

•As ~~CAMBIA~~of December 31, 2019, the Company’s specialty pharmaceutical business consisted primarily of Gralise® (gabapentin), a once daily product for the management of postherpetic neuralgia (PHN) that we launched in 2011; CAMBIA®(diclofenac potassium for oral solution), a ~~non-steroidal~~nonsteroidal anti-inflammatory drug for the acute treatment of migraine attacks, ~~that was~~ acquired by the Company in December 2013; and Zipsor® (diclofenac potassium liquid filled capsules), a nonsteroidal anti-inflammatory drug for the treatment of mild to moderate acute pain, acquired by the Company in June 2012, marketed in the U.S.

•On ~~Zipsor®~~December ~~(diclofenac~~4, ~~potassium~~2017, ~~liquid~~the ~~filled~~Company ~~capsules~~announced a commercialization agreement with Collegium Pharmaceutical, Inc. (Collegium), apursuant ~~non-steroidal~~to ~~anti-inflammatory~~which ~~drug~~the ~~for~~Company granted Collegium the ~~treatment~~right to commercialize the NUCYNTA franchise of ~~mild~~products in the U.S. (the Commercialization Agreement). Pursuant to ~~moderate~~the ~~acute~~Commercialization ~~pain~~Agreement, ~~that~~Collegium ~~was~~assumed ~~acquired~~all bycommercialization responsibilities for the NUCYNTA franchise effective January 9, 2018, including sales and marketing, and the Company inreceived ~~June~~royalties ~~2012~~on all NUCYNTA revenues based on certain net sales thresholds.

~~The~~On ~~Company~~December ~~also~~12, ~~has~~2019, the ~~exclusive~~Company ~~rights~~announced toit ~~market~~entered ~~long-acting~~into ~~cosyntropin~~an ~~(synthetic~~agreement ~~adrenocorticotropic~~with ~~hormone~~Golf Acquiror LLC, oran ~~ACTH)~~affiliate into ~~the~~Alvogen, UInc.S. ~~and~~(Alvogen), ~~Canada. Long-acting~~a ~~cosyntropin~~global isprivately anheld ~~alcohol-free~~pharmaceutical ~~formulation~~company, ofunder awhich ~~synthetic~~Alvogen ~~analogue~~acquired ofand ~~ACTH. In~~assumed ~~February~~all ~~2019,~~responsibilities ~~notification~~associated ofwith ~~acceptance~~the ~~for~~product ~~filing~~Gralise ~~was~~(gabapentin). ~~received~~Under ~~from~~the terms of the ~~U.S.~~agreement, ~~Food~~Alvogen ~~and~~will ~~Drug~~pay ~~Administration~~Assertio ~~(FDA)~~a ~~for~~total ~~our~~value ~~505(b)(2)~~of ~~New~~$127.5 ~~Drug~~million. ~~Application~~This ~~(NDA)~~included ~~for~~$75.0 ~~the~~million ~~novel~~in ~~injectable~~cash ~~formulation~~at ofclosing ~~long-acting~~on ~~cosyntropin. The~~January ~~Company~~10, ~~together~~2020, ~~with~~and ~~its~~the ~~development~~balance ~~partner,~~payable ~~seek~~as ~~approval~~75% ~~for~~of ~~the~~Alvogen’s ~~use~~first $70.0 million of ~~this~~Gralise ~~product~~net assales aafter ~~diagnostic~~the ~~drug~~closing. inAlvogen ~~the~~also ~~screening~~paid ofthe ~~patients~~Company ~~presumed~~for tocertain ~~have~~inventories ~~adrenocortical~~relating ~~insufficiency~~to Gralise.

~~The~~On February 6, 2020, the Company ~~maintains~~announced ait ~~Commercialization~~entered ~~Agreement~~into ~~with~~a ~~Collegium~~definitive ~~Pharmaceutical,~~agreement ~~Inc.~~with (Collegium) pursuant to which Collegium acquired the ~~Company~~NUCYNTA ~~granted~~franchise ~~Collegium~~of products from the ~~right~~Company, toand ~~commercialize~~assumed ~~the~~certain ~~NUCYNTA®~~contracts, ~~franchise~~liabilities and obligations of ~~pain~~the ~~products~~Company inrelating to the ~~United~~NUCYNTA ~~States.~~products, ~~Pursuant~~including those related to manufacturing and supply, post-market commitments and clinical development costs. Under the ~~Commercialization~~terms ~~Agreement~~of the agreement, Collegium ~~assumed~~paid ~~all~~Assertio ~~commercialization~~$375.0 ~~responsibilities~~million ~~for~~in ~~the~~cash ~~NUCYNTA~~at ~~franchise~~closing ~~effective~~on ~~January~~February 913, ~~2018~~2020, ~~including~~less ~~sales~~royalties ~~and~~paid ~~marketing. The~~to the Company ~~receives~~in a2020. ~~royalty~~Collegium onalso ~~all~~paid ~~NUCYNTA~~the ~~revenues~~Company ~~based~~for on certain ~~net~~inventories ~~sales~~relating ~~thresholds~~to the products.

On February 13, 2020, the Company repaid in full its outstanding aggregate principal amount of senior secured notes (Senior Notes) pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) and all subsequent amendments to the Note Purchase Agreement.

Basis of Preparation

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or (U.S. GAAP,) and USU.S. Securities and Exchange Commission (SEC) regulations for annual reporting.

In connection with the preparation of the financial statements for the year ended December 31, 2019, the Company evaluated whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity's ability to continue as a going concern within twelve months after the date of the issuance of these financial statements noting that there did not appear to be evidence of substantial doubt of the entity's ability to continue as a going concern.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Depomed Bermuda Ltd (Depo Bermuda), Depo NF Sub, LLC (Depo NF Sub) and Depo DR Sub, LLC (Depo DR Sub). All intercompany accounts and transactions have been eliminated on consolidation.57

On November 17, 2015, the Company entered into a definitive agreement to acquire the U.S. and Canadian rights to cebranopadol and its related follow-on compound from Grünenthal GmbH (Grünenthal). The acquisition of these rights closed on December 30, 2015 at which point the Company assigned its rights under the agreement to Depo Bermuda, a Company which was formed in Bermuda on December 22, 2015.

Depo NF Sub was formed on March 26, 2015, in connection with a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement) governing the Company’s issuance of $575.0 million aggregate principal amount of Senior Notes on April 2, 2015, for aggregate gross proceeds of approximately $562.0 million. On April 2, 2015, the Company and Depo NF Sub entered into a Pledge and Security Agreement with the Collateral Agent pursuant to which the Company and Depo NF Sub each granted the Collateral Agent (on behalf of the Purchasers) a security interest in substantially all of their assets, other than specifically excluded assets.

Depo DR Sub was formed in October 2013 for the sole purpose of facilitating the PDL Transaction. The Company contributed to Depo DR Sub all of its rights, title and interests in each of the license agreements to receive royalty and contingent milestone payments. Immediately following the transaction, Depo DR Sub sold to PDL, among other things, such rights to receive royalty and contingent milestone payments, for an upfront cash purchase price of $240.5 million.

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The ~~Company~~consolidated ~~and~~financial ~~Depo~~statements ~~DR Sub continue to retain certain administrative duties and obligations under the specified license agreements. These~~ include the ~~collection~~accounts of the ~~royalty~~Company and ~~milestone~~its ~~amounts~~wholly ~~due~~owned ~~and~~subsidiaries, ~~enforcement~~Depomed ofBermuda ~~related~~Ltd ~~provisions~~(Depo ~~under~~Bermuda), ~~the~~Depo ~~specified~~NF ~~license agreements~~Sub, ~~among~~LLC ~~others.~~(Depo InNF ~~addition,~~Sub) ~~the Company~~ and Depo DR Sub ~~must prepare a quarterly distribution report relating to the specified license agreements~~, ~~containing,~~LLC ~~among~~(Depo ~~other~~DR ~~items,~~Sub). ~~the~~These ~~amount~~subsidiaries ofare ~~royalty~~all ~~payments~~holding ~~received~~companies bycreated ~~the~~to ~~Company,~~facilitate ~~reimbursable~~certain ~~expenses~~transactions and ~~set‑offs.~~serve ~~The~~in ~~Company~~certain ~~and~~administrative ~~Depo~~capacities. DRThere ~~Sub~~are ~~must~~no ~~also~~material ~~provide~~operating ~~PDL~~results ~~with~~from ~~notice~~these ofsubsidiaries ~~certain~~and ~~communications,~~all ~~events~~intercompany oraccounts ~~actions with respect to the specified license agreements~~ and ~~infringement~~transactions ofhave ~~any~~been ~~underlying~~eliminated ~~intellectual~~on ~~property~~consolidation.

Use of Estimates

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

Cash, Cash Equivalents, Short-term Investments and Marketable Securities

The Company considers all highly liquid investments with an original maturity (at date of purchase) of three months or less to be cash equivalents. All marketable securities with original maturities at the date of purchase greater than three months and remaining maturities of less than one year are classified as short-term investments. Cash and cash equivalents consist of cash on deposit with banks, money market instruments and commercial paper. The Company places its cash, cash equivalents, short-term investments and marketable securities with high -quality U.S. government and financial institutions and to date has not experienced material losses on any of its balances.

Accounts Receivable

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment. To date the Company has not recorded a bad debt allowance since the majority of its product revenue comes from sales to a limited number of financially sound companies who have historically paid their balances timely. The need for a bad debt allowance is evaluated each reporting period based on the Company’s assessment of the credit worthiness of its customers or any other potential circumstances that could result in bad debt.

Inventories

Inventories are stated at the lower of cost or net realizable value with cost determined by specific manufactured lot. Inventories consist of costs of the active pharmaceutical ingredient, contract manufacturing and packaging costs. ~~The~~Additionally, the Company writes- off the value of inventory for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand and projected demand.

Investments

Assertio has two long-term investments as of December 31, ~~2018~~2019. During the year ended December 31, 2018, Assertio invested $3.0 million in a company engaged in medical research. This investment is structured as a long-term loan receivable with a convertible feature~~. The~~ ~~loan~~and is valued at ~~recoverable~~amortized cost~~, which is $3~~.0 ~~million and following an impairment assessment, it has been concluded that there is no impairment.~~

Assertio received warrants to purchase Collegium stock in conjunction with the November 2018 amendment to the Commercialization Agreement. Such warrants are measured at fair value with changes in fair value recorded in ~~other~~Other income, ~~and~~net ~~expense~~ on the Company’s Consolidated Statements of ~~Operation~~Comprehensive Income.

Acquisitions

The Company accounts for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recorded at date of acquisition at their respective fair values. The fair value of the consideration paid, including contingent consideration, is assigned to the underlying net assets of the acquired business based

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on their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Significant judgments are used in determining the estimated fair values assigned to the assets acquired and liabilities assumed and in determining estimates of useful lives of long-lived assets. Fair value determinations and useful life estimates are based on, among other factors, estimates of expected future net cash flows, estimates of appropriate discount rates used to present value expected future net cash flows, the assessment of each asset’s life cycle, and the impact of competitive trends on each asset’s life cycle and other factors. These judgments can materially impact the estimates used to allocate acquisition date fair values to assets acquired and liabilities assumed and the resulting timing and amounts charged to, or recognized in current and future operating results. For these and other reasons, actual results may vary significantly from estimated results.

Any changes in the fair value of contingent consideration resulting from a change in the underlying inputs is recognized in operating expenses until the contingent consideration arrangement is settled. Changes in the fair value of contingent consideration resulting from the passage of time are recorded within interest expense until the contingent consideration is settled.

If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, the amount allocated to acquired in-process research and development (IPR&D) with no alternative future use is charged to expense at the acquisition date.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, as follows:

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Furniture and office equipment	3 - 5 years
Machinery and equipment	5 - 7 years
Laboratory equipment	3 - 5 years
Leasehold improvements	Shorter of estimated useful life or lease term

Intangible Assets

Intangible assets consist of purchased developed technology and trademarks that are accounted for as definite-lived intangible assets subject to amortization. The Company determines the fair values of acquired intangible assets as of the acquisition date. Discounted cash flow models are typically used in these valuations, which require the use of significant estimates and assumptions, including but not limited to, developing appropriate discount rates and estimating future cash flows from product sales and related expenses. The fair value recorded is amortized on a straight-line basis over the estimated useful life of the asset. The Company evaluates purchased intangibles for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when the fair value of the asset is lower than the carrying amount. To test for impairment, the Company estimates undiscounted future cash flows expected to result from the use of the asset and its eventual disposition and compares that amount to the asset’s carrying amount. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions.

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers (ASC 606) on January 1, 2018 using the modified retrospective transition method. There was no adjustment to the Company’s opening balance of accumulated deficit resulting from the adoption of this guidance.

Prior to the adoption of ASC 606, the Company recognized revenue from the sale of its products, royalties earned, and payments received and services performed under contractual arrangements in accordance with ASC 605. Under ASC 605, Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable and the Company is reasonably assured of collecting the resulting receivable. Revenue arrangements with multiple elements are evaluated to determine whether the multiple elements meet certain criteria for dividing the arrangement into separate units of accounting, including whether the delivered element(s) have stand-alone value to the Company’s customer or licensee. Where there are multiple deliverables combined as a single unit of accounting, revenues are deferred and recognized over the performance period.

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Under ASC 606, the Company recognizes revenue when its customer obtains control of the promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation, when (or as) the performance obligation is satisfied. The Company assesses the term of the contract based upon the contractual period in which the Company and Collegium have enforceable rights and obligations.

The Company recognizes a contract asset relating to its conditional right to consideration for completed performance obligations. Accounts receivable are recorded when the right to consideration becomes unconditional. A contract liability is recorded for payments received in advance of the related performance obligation being satisfied under the contract.

Commercialization Agreement

The Company derives revenue under its Commercialization Agreement with Collegium whereby the Company granted Collegium the right to commercialize the NUCYNTA franchise of pain products in the United States. The Company entered into the Commercialization Agreement in December 2017, which became effective in January 2018, and amended the agreement in August 2018 and again in November 2018. The Company views its performance obligations as a series of distinct goods or services that are substantially the same and that have the same pattern of transfer. Prior to the November 2018 amendment, the consideration related to the license and facilitation services was fixed and recognized ratably over the contract term. Following the November 2018 amendment, the royalty payments owed to the Company from Collegium, pursuant to the terms of the Commercialization Agreement, represent variable compensation that is subject to the sales based royalty exception for licenses of intellectual property because the License is the predominant component of this arrangement. 59

The Company is responsible for royalty payments to a third party related to sales of NUCYNTA. Under the terms of the Commercialization Agreement, a portion of these payments are remitted from Collegium to the third party and a portion are the responsibility of the Company. Following the November 2018 amendment, Collegium will reimburse the Company for all royalties paid to the third party. As the Company is not actively commercializing NUCYNTA, such royalties are recorded by the Company on a systematic basis in proportion to the underlying net product sales and are included as gross-to-net adjustments in the related revenue line in the Company’s Statements of Operations.

Product Sales

The Company sells commercial products to wholesale distributors, specialty pharmacies and retail pharmacies. Product sales revenue is recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically occurs on delivery to the customer. The Company’s performance obligation is to deliver product to the customer, and the performance obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable product sales allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable reserves for these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.

Product Sales Allowances—The Company considers products sales allowances to be variable consideration and estimates and recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on actual or estimated amounts owed on the related sales. These estimates take into consideration the terms of the Company’s agreements with customers, historical product returns, rebates or discounts taken, estimated levels of inventory in the distribution channel, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. The Company uses the most likely method in estimating product sales allowances. If actual future results vary from the Company’s estimates, the Company may need to adjust these estimates,

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The Company derives revenue under the Commercialization Agreement with Collegium whereby the Company granted Collegium the right to commercialize the NUCYNTA franchise of products in the U.S. The Company entered into the Commercialization Agreement in December 2017, which ~~could~~became effective in January 2018, and amended the agreement in August 2018 and in November 2018. The Company views its performance obligations as a series of distinct goods or services that are substantially the same and that have anthe ~~effect~~same onpattern ~~product~~of transfer. Prior to the November 2018 amendment, the consideration related to the license and facilitation services was fixed and recognized ratably over the contract term. Following the November 2018 amendment, the royalty payments represent variable consideration that are subject to the sales-based royalty exception for licenses of intellectual property and ~~earnings~~are inrecognized at the ~~period~~later of ~~adjustment.~~(i) ~~The~~when ~~Company’s~~the subsequent product sales ~~allowances~~occur ~~include:~~or (ii) the performance obligation, to which some or all of the sales-based royalty has been allocated, has been satisfied.

The Company is responsible for royalty payments to a third party related to sales of NUCYNTA. Prior to the November 2018 amendment, Collegium became primarily responsible for these royalties in connection with the Commercialization Agreement; however, a portion of these payments remained the responsibility of the Company. Following the November 2018 amendment, effective January 1, 2019, Collegium became responsible for the third-party royalty payments entirely. As the Company is not actively commercializing NUCYNTA, such royalties are recorded by the Company on a systematic basis in proportion to the underlying net product sales, subject to the sales-based royalty exemption for license of intellectual property, and are included as gross-to-net adjustments in the related revenue line in the Company’s Statements of Comprehensive Income. Such amounts, over the course of the calendar year, have no net impact.

Product Sales

The Company sells commercial products to wholesale distributors and specialty pharmacies. Product sales revenue is recognized when title has transferred to the customer and the customer has assumed the risks and rewards of ownership, which typically occurs on delivery to the customer. The Company’s performance obligation is to deliver product to the customer, and the performance obligation is completed upon delivery. The transaction price consists of a fixed invoice price and variable product sales allowances, which include rebates, discounts and returns. Product sales revenues are recorded net of applicable sales tax and reserves for these product sales allowances. Receivables related to product sales are typically collected one to two months after delivery.

Product Returns—The Company allows customers to return product for credit with respect to that product within six months before and up to 12 months after its product expiration date. The Company estimates product returns and associated credit on NUCYNTA ER and NUCYNTA, Gralise, CAMBIA, Zipsor and Lazanda. Estimates for returns are based on historical return trends by product or by return trends of similar products, taking into consideration the shelf life of the product at the time of shipment, shipment and prescription trends, estimated distribution channel inventory levels and consideration of the introduction of competitive products. The Company did not assume financial responsibility for returns of NUCYNTA ER and NUCYNTA previously sold by Janssen Pharma or Lazanda product previously sold by Archimedes Pharma US Inc. Under the Commercialization Agreement with Collegium for NUCYNTA ER and NUCYNTA and the divestiture of Lazanda to Slán, the Company is only financially responsible for product returns for product that were sold by the Company, which are identified by specific lot numbers.

The shelf life of NUCYNTA ER and NUCYNTA is 24 months to 36 months from the date of tablet manufacture. The shelf life of Gralise is 24 months to 36 months from the date of tablet manufacture. The shelf life of CAMBIA is 24 months to 48 months from the manufacture date. The shelf life of Zipsor is 36 months from the date of tablet manufacture. The shelf life of Lazanda is 24 to 36 months from the manufacture date. Because of the shelf life of the Company’s products and its return policy of issuing credits with respect to product that is returned within six months before and up to 12 months after its product expiration date, there may be a significant period of time between when the product is shipped and when the Company issues credit on a returned product. Accordingly, the Company may have to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustments.

Wholesaler and Retail Pharmacy Discounts — The Company offers contractually determined discounts to certain wholesale distributors and retail pharmacies that purchase directly from it. These discounts are either taken off invoice at the time of shipment or paid to the customer on a quarterly basis one to two months after the quarter in which product was shipped to the customer.60

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Wholesaler and Pharmacy Discounts—The Company offers contractually determined discounts to certain wholesale distributors and specialty pharmacies that purchase directly from it. These discounts are either taken off invoice at the time of shipment or paid to the customer on a quarterly basis one to two months after the quarter in which product was shipped to the customer.

Prompt Pay Discounts—The Company offers cash discounts to its customers (generally 2% of the sales price) as an incentive for prompt payment. Based on the Company’s experience, the Company expects its customers to comply with the payment terms to earn the cash discount.

Patient Discount Programs—The Company offers patient discount co-pay assistance programs in which patients receive certain discounts off their prescriptions at participating retail and specialty pharmacies. The discounts are reimbursed by the Company approximately one month after the prescriptions subject to the discount are filled.

Medicaid Rebates—The Company participates in Medicaid rebate programs, which provide assistance to certain low income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, the Company pays a rebate to each participating state, generally two to three months after the quarter in which prescriptions subject to the rebate are filled.

Chargebacks—The Company provides discounts to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS contract with the Department of Veterans Affairs. These federal entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current retail price and the price the federal entity paid for the product.

Managed Care Rebates—The Company offers discounts under contracts with certain managed care providers. The Company generally pays managed care rebates one to three months after the quarter in which prescriptions subject to the rebate are filled.

Medicare Part D Coverage Gap Rebates — The Company participates in

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