# COLLEGIUM PHARMACEUTICAL, INC (COLL) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from COLLEGIUM PHARMACEUTICAL, INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1267565/000155837023001900/coll-20221231x10k.htm
Accession: 0001558370-23-001900
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/COLL/
All MD&A years: /company/COLL/mda/
Previous year: /company/COLL/mda/fy2021/ (FY 2021)
Next year: /company/COLL/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Form 10-K, including those set forth under “Forward-looking Statements” and “Risk Factors,” as revised and supplemented by those risks described from time to time in other reports which we file with the SEC.

Overview

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We are building a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. We commercialize our pain portfolio, consisting of Xtampza ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), Belbuca, and Symproic, in the United States.

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Xtampza ER, an abuse-deterrent, oral formulation of oxycodone, was approved by the FDA in April 2016 for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. We commercially launched Xtampza ER in June 2016.

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The Nucynta Products are extended-release (“ER”) and immediate-release (“IR”) formulations of tapentadol. Nucynta ER is indicated for the management of pain severe enough to require daily, around the clock, long-term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in adults, and for which alternate treatment options are inadequate. Nucynta IR is indicated for the management of acute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate in adults. We began shipping and recognizing product sales on the Nucynta Products in January 2018 and began marketing the Nucynta Products in February 2018.

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On March 22, 2022, we acquired BioDelivery Sciences International, Inc. (“BDSI”), a specialty pharmaceutical company working to deliver innovative therapies for individuals living with serious and debilitating chronic conditions, pursuant to an Agreement and Plan of Merger, dated as of February 14, 2022, by and among us, Bristol Acquisition Company Inc., our wholly owned subsidiary, and BDSI (the “BDSI Acquisition”). Upon closing, we acquired the Belbuca, Symproic, and Elyxyb products. We began shipping and recognizing product sales related to Belbuca, Symproic, and Elyxyb in March 2022.

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Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. Symproic was approved by the FDA in March 2017 for the treatment of opioid-induced constipation (“OIC”) in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. Elyxyb was approved by the FDA in May 2020 for the acute treatment of migraine with or without aura in adults. We discontinued commercialization of Elyxyb in the fourth quarter of 2022 and transferred that product, together with related assets and liabilities, to a third party in the first quarter of 2023.

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We believe the addition of Belbuca and Symproic to our portfolio strategically aligns with our mission to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people suffering from serious medical conditions.

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Outlook

We incurred net losses in each year since inception until 2020. In the year ended December 31, 2022, we also incurred a net loss. Substantially all our net losses resulted from costs incurred in connection with selling, general and administrative costs associated with our operations and research and development programs, and we expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution, selling and reimbursement activities.

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The BDSI Acquisition diversified and expanded our business by adding Belbuca and Symproic to our highly differentiated pain portfolio. We expect the addition of these products to continue to strengthen our financial position

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through increased revenue scale and accelerated cash flow generation. While we incurred significant transaction costs and other acquisition related expenses during the year ended December 31, 2022 to complete the BDSI Acquisition and to integrate BDSI’s operations, we do not expect to incur additional acquisition related expenses related to the BDSI Acquisition moving forward. In addition, we expect the step-up basis in inventory to impact our results of operations until all acquired inventory is sold, which we expect to occur within 12 to 18 months following the Acquisition Date.

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We believe that our cash and cash equivalents at December 31, 2022, together with expected cash inflows from the commercialization of our products, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for the foreseeable future.

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As the COVID-19 pandemic unfolded, and governmental and societal reactions to it evolved, our business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products, and labor disruptions that impacted pain offices, which in turn impacted our access to, and quality of interactions with, such offices. Notwithstanding the fact that the Department of Health and Human Services is planning for the federal public health emergency for COVID-19 to expire in May 2023, we expect the trends that emerged as a result of the pandemic to persist in the near to medium term.

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Financial Operations Overview

Product Revenues

Product revenues through the year ended December 31, 2022 were primarily generated from sales of Xtampza ER, the Nucynta Products, Belbuca, and Symproic. In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, (“ASC 606”) product sales are recorded upon delivery of products to customers, net of a provision for estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns.

Cost of Product Revenues

Cost of product revenues include amortization and impairment expense for the intangible assets acquired in connection with business combinations and asset acquisitions, royalty expenses, the cost of active pharmaceutical ingredient, the cost of producing finished goods that correspond with revenue for the reporting period, as well as certain period costs related to freight, packaging, stability and quality testing. Refer to Note 5, License Agreements, and Note 10, Goodwill and Intangible Assets, for further detail around the intangible assets acquired from the BDSI Acquisition, the Nucynta Intangible Asset and royalty expenses.

Research and Development Expenses

Research and development expenses have historically consisted of product development expenses incurred in identifying, developing, and testing product candidates including stock-based compensation; costs associated with conducting our clinical and non-clinical activities, including clinical and non-clinical trials that we conduct for post-marketing requirements; and costs for laboratory supplies, depreciation of lab equipment, and other expenses including allocated expenses for rent and maintenance of facilities. These costs have historically been expensed as incurred.

As of April 1, 2022, we focused entirely on commercial products rather than research and development and redirected resources from research and development activities. As such, there were no expenses incurred in research and development after the three months ended March 31, 2022.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation and travel expenses for our employees. Other selling, general and administrative expenses include facility-related costs and professional fees for directors, accounting and legal services, and expenses associated with obtaining and maintaining patents. As we continue to invest in the commercialization of our products, we expect our selling, general and administrative expenses to continue to be substantial for the foreseeable future.

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Interest Expense

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Interest expense consists primarily of cash and non-cash interest costs related to our debt, including the term loan issued in March 2022 in connection with the BDSI Acquisition (the “2022 Term Loan”), and the term notes (the “2020 Term Loan”) and convertible notes (the “2026 Convertible Notes”) issued in February 2020 in connection with the Nucynta Acquisition. On March 22, 2022 the outstanding balance related to the 2020 Term Loan was fully paid in connection with the closing of the BDSI Acquisition and establishment of the 2022 Term Loan. Historically, interest expense also related to a term loan facility with Silicon Valley Bank (“SVB”) in connection with the Nucynta Commercialization Agreement. However, in January 2020, we prepaid the outstanding principal, accrued interest, and required prepayment fees on the SVB term loan and recognized an immaterial loss on extinguishment as a component of interest expense.

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Interest Income

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Interest income consists of interest earned on our cash and cash equivalents.

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Provision for Income Taxes

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The provision for income taxes reflects expense or tax benefit for federal and state income taxes. During the year ended December 31, 2022, we recognized a tax benefit, partially offset by state income tax expense. The provision for 2022 income taxes primarily consisted of state income tax for states for which our state-level NOLs did not fully offset state-level taxable income. During the year ended December 31, 2021, we removed the valuation allowance on the substantial majority of our deferred tax assets, resulting in a tax benefit in 2021 partially offset by state tax expense.

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Critical Accounting Policies and Significant Judgments and Estimates

Our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. Estimates include revenue recognition, including the estimates of product returns, discounts and allowances related to commercial sales of our products, estimates related to the fair value of assets acquired and liabilities assumed, including acquired intangible assets and the fair value of inventory acquired, estimates utilized in the ongoing valuation of inventory related to potential unsaleable product, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, intangible assets and deferred tax valuation allowances. We base our estimates and assumptions on historical experience when available and on various factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results. While our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing elsewhere in this on Form 10-K, we believe the following accounting policies to be most critical to the significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Our accounting policy for revenue recognition will have a substantial impact on reported results and relies on certain estimates. Estimates are based on historical experience, current conditions and various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amounts of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.

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Product Revenue

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Our only source of revenue to date has been generated by sales of our products, which are primarily sold to distributors (“customers”), which in turn sell the product to pharmacies and others for the treatment of patients (“end users”). Revenue for product sales is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. This generally occurs upon delivery to our customers when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns are reasonably determinable. Therefore, product sales are recorded upon delivery to our customers net of estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, as well as estimated product returns.

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Sales Deductions

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Sales deductions consist primarily of provisions for (1) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (2) product returns, including return estimates for our products; and (3) trade allowances and chargebacks, including fees for distribution service fees, prompt pay discounts, and chargebacks. We estimate the amount of variable consideration that should be included in revenue under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect our best estimates of the amount of revenue to which we are entitled based on the terms of our contracts.

Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales from the period. As our rebates and incentives are based on products dispensed to patients, we are required to estimate the expected value of claims at the time of product delivery to distributors. Given that distributors sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. Our estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.

Provisions for product returns, including returns for Xtampza, the Nucynta Products, Belbuca and Symproic, are based on product-level returns rates, including processed as well as unprocessed return claims, in addition to relevant market events and other factors. Estimates of the future product returns are made at the time of revenue recognition to determine the amount of consideration to which we expect to be entitled (that is, excluding the products expected to be returned). At the end of each reporting period, we analyze trends in returns rates and update our assessment of variable consideration for returns to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. To the extent we receive amounts in excess of what we expect to be entitled to receive due to a product return, we do not recognize revenue when we transfer products to customers but instead recognize those excess amounts received as a refund liability. We update the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).

We provide the right of return to our customers for an 18-month window beginning six months prior to expiration and up until twelve months after expiration. Our customers short-pay an existing invoice upon notice of a product return claim. Adjustments to the preliminary short-paid claims are processed when the return claim is validated and finalized. Our return policy requires that product is returned and that the return is claimed within the 18-month window. Refer to Note 3, Revenue from Contracts with Customers, for more information.

Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms. Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized in the period.

Business Combination Accounting and Valuation of Acquired Assets

We completed the BDSI Acquisition on March 22, 2022, which was accounted for as a business combination. To determine whether the acquisition should be accounted for as a business combination or as an asset acquisition, we made

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certain judgments regarding whether the acquired set of activities and assets met the definition of a business. Judgment is required in assessing whether the acquired processes or activities, along with their inputs, would be substantive to constitute a business, as defined by U.S. GAAP.

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The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed. The determination of the fair value of the acquired assets and liabilities assumed is a critical accounting estimate because the estimation of fair values requires significant management judgement and requires various assumptions based on non-observable inputs that are included in valuation models. An income approach, which generally relies upon projected cash flow models, is used in estimating the fair value of the acquired intangible assets and the fair value of acquired inventory. These cash flow projections are based on management's estimates of economic and market conditions including the estimated future cash flows from revenues of acquired assets, the timing and projection of costs and expenses and the related profit margins, tax rates, and an appropriate discount rate.

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During the measurement period, which occurs before finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of assets acquired and liabilities assumed, if based on facts and circumstances existing at the acquisition date, are recorded on a retroactive basis as of the acquisition date, with the corresponding offset to goodwill. Any adjustments not based on facts and circumstances existing at the acquisition date, or if subsequent to the conclusion of the measurement period, will be recorded to our consolidated statements of operations.

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Intangible Assets

We record the fair value of acquired finite-lived intangible assets as of the transaction date. Intangible assets are then amortized over their estimated useful lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. We test intangible assets for potential impairment whenever triggering events or circumstances present an indication of impairment. If the sum of expected undiscounted future cash flows of the intangible assets (or asset group) is less than the carrying amount of such assets, the intangible assets would be written down to the estimated fair value, calculated based on the present value of expected future cash flows. As of December 31, 2022, our intangible assets included those acquired in connection with the BDSI Acquisition and the Nucynta Intangible Asset. There have been no triggering events that indicate that the carrying value is not recoverable from undiscounted cash flows other than Elyxyb, which was subject to an impairment event in the fourth quarter of 2022 when commercialization of the product was discontinued.

Income Taxes

We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse.

We provide a valuation allowance when it is more likely than not that deferred tax assets will not be realized. In determining the extent to which a valuation allowance for deferred tax assets is required, we evaluate all available evidence including projections of future taxable income, carryback opportunities, reversal of certain deferred tax liabilities, and other tax planning strategies.

As a result of sustained positive earnings history as demonstrated through cumulative earnings, we are using projections of future taxable income as a source of realizing our deferred tax assets. We have maintained a valuation allowance on the portion of our deferred tax assets that are not more likely than not to be realized due to tax limitation or other conditions of $5.3 million as of December 31, 2022.

Significant judgment is required in making these assessments to maintain or reverse our valuation allowances, and, to the extent our future expectations change we would have to assess the recoverability of these deferred tax assets at that time.

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Results of Operations

In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes the results of our operations for the years ended December 31, 2022 and 2021:

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[[/GREPCENT_TABLE]]

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Product revenues, net

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Product revenues, net were $463.9 million for the year ended December 31, 2022 (“2022”), compared to $276.9 million for the year ended December 31, 2021 (“2021”), representing a $187.0 million increase. The $187.0 million increase is primarily due to increases in revenue for products acquired from BDSI of $140.6 million, including $126.5 million for Belbuca, as well as increases in revenue for Xtampza ER and the Nucynta Products of $35.1 million and $11.3 million, respectively.

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The increase in revenue for products acquired from BDSI was due to the acquisition of these products in March 2022.

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The increase in revenue for Xtampza ER of $35.1 million is primarily due to an increase in gross price and lower gross-to-net adjustments primarily related to rebates and provisions for returns, including revisions in the estimate of variable consideration associated with unprocessed returns claims, resulting in a $8.1 million increase in comparative revenue, partially offset by decreased sales volume.

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The increase in revenue for the Nucynta Products of $11.3 million is primarily due to an increase in gross price and lower provisions for returns, including revisions in the estimate of variable consideration associated with unprocessed returns claims, resulting in a $3.4 million comparative decrease in revenue, partially offset by decreased sales volume and higher rebates.

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Cost of product revenues

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Cost of product revenues (excluding intangible asset amortization) was $118.2 million for 2022, compared to $59.1 million for 2021. The $59.1 million increase was primarily related to the step-up basis in inventory acquired from BDSI which resulted in higher cost of product revenues when sold in 2022 of $39.6 million, combined with an increase in

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royalties and cost of product revenues for additional products acquired from BDSI. This increase was partially offset by lower cost of product revenues associated with the Nucynta Products and Xtampza ER, which was primarily related to a decrease in sales volume.

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Intangible asset amortization and impairment was $136.3 million for 2022, compared to $67.2 million for 2021. The $69.1 million increase in amortization expense was due to the BDSI Acquisition, in which $435.0 million of consideration was allocated to our acquired intangible assets, Belbuca, Symproic, and Elyxyb. The intangible assets are amortized on a straight-line basis over the respective estimated useful lives. In addition to amortization expense, impairment expense of $4.8 million was recognized in 2022 related to Elyxyb which was impaired in the fourth quarter of 2022 following our decision to discontinue commercialization of this product.

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Operating Expenses

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Research and development expenses were $4.0 million for 2022, compared to $9.5 million for 2021. The $5.5 million decrease was due to redirection of resources from research and development activities during 2022 as we shifted our focus to supporting our commercial products rather than research and development.

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Selling, general and administrative expenses were $172.2 million for 2022, compared to $119.0 million for 2021. The $53.2 million increase was primarily related to:

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[[GREPCENT_TABLE]]
[["","\u25cf","an increase in acquisition related expenses classified as selling, general and administrative of $31.3 million which primarily consisted of financial advisory, banking, legal, and regulatory fees, other consulting fees, employee-related severance expenses, BDSI directors and officers insurance, and miscellaneous other acquisition related expenses incurred;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in sales, marketing, and consulting expenses of $10.7 million, primarily due to expenses incurred to support the commercialization of products acquired from BDSI in 2022, including Belbuca and Symproic, as well as for supporting the commercial launch of Elyxyb prior to its discontinuation in the fourth quarter of 2022;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in salaries, wages, and benefits of $4.0 million, primarily due to higher expense for corporate bonuses and incentive compensation due to improved company performance in 2022 compared to 2021;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in regulatory fees of $2.7 million primarily due to fees incurred for products acquired from BDSI in 2022 following the BDSI Acquisition;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in trainings, conferences, and meetings expenses of $1.9 million primarily due to certain annual internal meetings resuming in 2022 for the first time since the onset of the COVID-19 pandemic;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in product taxes and fees of $1.7 million due to incurring product taxes and fees for products acquired from BDSI in 2022; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in insurance expense of $1.4 million, primarily due to higher premiums."]]
[[/GREPCENT_TABLE]]

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Restructuring expenses were zero for 2022, compared to $4.6 million for 2021. The decrease in restructuring expenses is due to the reduction of our workforce, primarily our salesforce, in 2021. The arrangement included the payment of a cash severance benefit near the time of separation, together with continued medical benefits and related services. Refer to Note 2, Summary of Significant Accounting Policies, for more information.

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Interest expense and Interest income

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Interest expense was $63.2 million for 2022, compared to $21.0 million for 2021. The $42.2 million increase was primarily due to the 2022 Loan Agreement that we entered into in connection with the BDSI Acquisition, which substantially increased our indebtedness, along with higher interest rates impacting our variable rate term loan debt.

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Interest income was $1.0 million for 2022, compared to $12,000 for 2021. The $1.0 million increase was primarily due to an increase in interest rates earned on money market funds and a higher overall balance invested in money market funds in 2022 compared to 2021.

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Taxes

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Benefit from income taxes was $3.8 million for 2022, compared to $74.9 million in 2021. The $71.1 million decrease in benefit was primarily due to 2021 including a deferred tax benefit of $78.0 million due to the removal of the valuation allowance on the substantial majority of our deferred tax assets. In 2022, we recognized a deferred tax benefit, partially

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offset by state income tax expense. The provision for income taxes in 2022 primarily consistent of state income tax for states for which our state-level NOLs did not fully offset state-level taxable income. The effective tax rate was 13.3% and 2,220.0% for 2022 and 2021, respectively.

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Liquidity and Capital Resources

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Sources of Liquidity

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We incurred net losses in each year since inception until 2020. In the year ended December 31, 2022, we also incurred a net loss. Historically, we have funded such losses through private placements and/or public offerings of our preferred stock, common stock, and convertible notes, and commercial bank debt. We are primarily dependent on the commercial success of Belbuca, Xtampza, and the Nucynta Products. In March 2022, our debt balance increased significantly as we modified the 2020 Term Loan with Pharmakon to an increased principal balance of $650.0 million to fund a portion of the consideration paid to complete the BDSI Acquisition. We are required to pay $100.0 million in principal payments during the first year of the 2022 Term Loan and the remaining $550.0 million balance is required to be paid in equal quarterly installments over the remaining three years of the term note. As of December 31, 2022, the outstanding principal balance of the 2022 Term Loan was $575.0 million, of which $162.5 million in principal payments are due within the next 12 months. As of December 31, 2022, the outstanding principal balance of the convertible notes was $143.8 million which is not due until 2026. As of December 31, 2022, and December 31, 2021, we had $173.7 million and $186.4 million in cash and cash equivalents, respectively.

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We believe that our cash and cash equivalents at December 31, 2022, together with expected cash inflows from operations, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for the foreseeable future.

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Borrowing Arrangements and Equity Offerings

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The following transactions represent the material borrowing arrangements and equity offerings.

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2020 Term Loan

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On February 6, 2020, in connection with the execution of the Nucynta Purchase Agreement, we, together with our subsidiary, Collegium Securities Corporation, entered into a loan agreement (the “2020 Loan Agreement”) with BioPharma Credit PLC, as collateral agent and lender; and BioPharma Credit Investments V (Master) LP, as lender (collectively “Pharmakon”). The 2020 Loan Agreement provides for a $200.0 million secured term loan, the proceeds of which were used to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

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On March 22, 2022 the outstanding balance under the 2020 Loan Agreement was fully paid in connection with the closing of the BDSI Acquisition and establishment of the 2022 Term Loan, as described below.

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2022 Term Loan

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On March 22, 2022, in connection with the closing of the BDSI Acquisition, we entered into an Amended and Restated Loan Agreement by and among us, and Pharmakon (the “2022 Loan Agreement”). The 2022 Loan Agreement provided for the $650.0 million secured 2022 Term Loan, the proceeds of which were used to repay our existing term notes and fund a portion of the consideration to be paid to complete the BDSI Acquisition. The 2022 Loan Agreement was accounted for as a debt modification and transaction fees of $173,000 were expensed. In connection with the 2022 Loan Agreement, we paid loan commitment and other fees to the lender of $19.8 million, which together with preexisting debt issuance costs and note discounts of $2.0 million will be amortized over the term of the loan using the effective interest rate.

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The 2022 Term Loan will mature on the 48-month anniversary of the closing of the BDSI Acquisition and is guaranteed by our material domestic subsidiaries. The 2022 Term Loan is also secured by substantially all of our assets and those of our material domestic subsidiaries. The 2022 Term Loan bears interest at a rate based upon the London Interbank Offered Rate (“LIBOR”) (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per annum. As of December 31, 2022, the interest rate was 11.2%. We are required to repay the 2022 Term Loan by paying $100.0 million in principal payments during the first year and the remaining $550.0 million balance will amortize in equal quarterly installments

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over the remaining three years. The outstanding principal balance for the 2022 Term Loan as of December 31, 2022 is $575.0 million, including $162.5 million of obligations due in the first twelve months after period end.

​

The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium. The prepayment premium is equal to 2.00% of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00% of the principal amount being prepaid on or after the second-year anniversary of the closing date. The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date. A change of control also triggers a mandatory prepayment of the 2022 Term Loan.

​

The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business. Failure to comply with these covenants would constitute an event of default under the 2022 Loan Agreement, notwithstanding our ability to meet our debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement. As of December 31, 2022, we were in compliance with all of our covenants.

​

2026 Convertible Notes

​

On February 13, 2020, in connection with the execution of the Nucynta Purchase Agreement, we issued 2.625% convertible senior notes due 2026, in the aggregate principal amount of $143.8 million, in a public offering registered under the Securities Act of 1933, as amended. The proceeds were used to finance a portion of the purchase price paid pursuant to the Nucynta Purchase Agreement.

​

The 2026 Convertible Notes are senior, unsecured obligations and will accrue interest at a rate of 2.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. The notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted. Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate is 34.2618 shares of common stock per $1,000 principal amount of notes, which represents an initial conversion price of approximately $29.19 per share of common stock. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events. The outstanding principal balance for the 2026 Convertible Notes as of December 31, 2022 is $143.8 million. There are no principal repayment obligations due in the first twelve months after period end.

​

2029 Convertible Notes

​

On February 13, 2023, we issued 2.875% convertible senior notes due in 2029 in the aggregate principal amount of $241.5 million (the “2029 Convertible Notes”). Contemporaneously with the pricing of the notes in the offering, we entered into separate privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $117.4 million aggregate principal amount of the 2026 Convertible Notes for an aggregate of approximately $140.1 million of cash, which includes accrued and unpaid interest on the 2026 Convertible Notes to be repurchased. Refer to Note 20, Subsequent Events, for more information.

​

51

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Cash flows

​

In this section, we discuss cash flows for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Years Ended December 31,"],["\u200b","2022","\u200b","2021"],["Net cash provided by operating activities","$","124,230","","$","103,557"],["Net cash used in investing activities","","(573,691)","\u200b","","(1,944)"],["Net cash provided by (used in) financing activities","","436,723","\u200b","","(89,303)"],["Net (decrease) increase in cash, cash equivalents and restricted cash","$","(12,738)","\u200b","$","12,310"]]
[[/GREPCENT_TABLE]]

​

Operating activities. Cash provided by operating activities was $124.2 million in 2022, compared to $103.6 million in 2021. The $20.6 million increase in cash provided by operating activities was primarily due to the impact of higher non-cash items included in net loss, including higher intangible asset amortization as a result of the BDSI Acquisition, and the effect of deferred taxes. This increase was partially offset by lower net income, primarily due to acquisition related expenses, as well as changes in working capital. The change in working capital is primarily due to the effect of working capital balances acquired from BDSI, inclusive of the step-up basis in inventory acquired, as well as accrued rebates, returns, and discounts.

​

Investing activities. Cash used in investing activities was $573.7 million in 2022, compared to $1.9 million in 2021. The $571.8 million increase in cash used in investing activities was primarily due to the use of $572.1 million for the BDSI Acquisition, net of cash acquired, which closed in 2022.

Financing activities. Cash provided by financing activities was $436.7 million in 2022, compared to cash used in financing activities of $89.3 million in 2021. The $526.0 million increase was primarily due to the repayment of the outstanding balance of the 2020 Term Loan in connection with the BDSI Acquisition and establishment of the 2022 Term Loan, which was accounted for as a debt modification, resulting in $517.7 million in proceeds from the term note modification, partially offset by $75.0 million in repayments of the 2022 Term Loan, combined with $50.0 million in repayments of the 2020 Term Loan in 2021. The remainder of the increase in financing activities was primarily due to $33.8 million less in repurchases of common stock in 2022.

​

Funding requirements

We believe that our cash and cash equivalents as of December 31, 2022, together with expected cash inflows from operations, will enable us to fund our operating expenses, debt service and capital expenditure requirements under our current business plan for the foreseeable future. However, we are subject to all the risks common to the commercialization and development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

​

Certain economic or strategic considerations may cause us to seek additional cash through private or public debt or equity offerings. Such funds may not be available when needed, or, we may not be able to obtain funding on favorable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

​

Our forecast that our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we

52

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currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including:

​

[[GREPCENT_TABLE]]
[["","\u25cf","the generation of reasonable levels of revenue from products sales;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the cost of growing and maintaining sales, marketing and distribution capabilities for our products;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the cost of patent infringement litigation, which may be expensive to defend;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the cost of litigation related to opioid marketing and distribution practices;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the timing and costs associated with manufacturing our products, for commercial sale and clinical trials; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the effect of competing technological and market developments."]]
[[/GREPCENT_TABLE]]

​

If we cannot capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.

Contractual Obligations

Our contractual obligations as of December 31, 2022 that will affect our future liquidity include our term loan, including interest, convertible senior notes, including interest, operating lease obligations, and purchase obligations. For further detail regarding our term notes and convertible senior notes, refer to Note 13, Debt. For further detail regarding our operating lease obligations, refer to Note 14, Leases.

Our purchase obligations represent the minimum purchase obligations of up to $3.0 million per year with our contract manufacturer which are in effect as of December 31, 2022 and will remain in effect each year until the termination of our manufacturing agreement.

We also have employment agreements with executive officers that would require us to make severance payments to them if we terminate their employment without cause or the executives resign for good cause. These payments are contingent upon the occurrence of various future events, and the amounts payable under these provisions depend upon the level of compensation at the time of termination of employment, and therefore, are not calculable at this time.

​

Non-GAAP Financial Measures

​

To supplement our financial results presented on a GAAP basis, we have included information about certain non-GAAP financial measures. We use these non-GAAP financial measures to understand, manage and evaluate our business as we believe they provide additional information on the performance of our business. We believe that the presentation of these non-GAAP financial measures, taken in conjunction with our results under GAAP, provide analysts, investors, lenders and other third parties insight into our view and assessment of our ongoing operating performance. In addition, we believe that the presentation of these non-GAAP financial measures, when viewed with our results under GAAP and the accompanying reconciliations, provide supplementary information that may be useful to analysts, investors, lenders, and other third parties in assessing our performance and results from period to period. We report these non-GAAP financial measures to portray the results of our operations prior to considering certain income statement elements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP.

​

In our quarterly and annual reports, earnings press releases and conference calls, we may discuss the following financial measures that are not calculated in accordance with GAAP, to supplement our consolidated financial statements presented on a GAAP basis.

​

Adjusted EBITDA

​

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude interest expense, interest income, the benefit from or provision for income taxes, depreciation, amortization, stock-based compensation, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted EBITDA, as used by us, may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

​

53

Table of Contents

There are several limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent, such as:

​

[[GREPCENT_TABLE]]
[["","\u25cf","adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","adjusted EBITDA does not reflect the benefit from or provision for income taxes or the cash requirements to pay taxes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude impairment expenses from adjusted EBITDA and, although these are non-cash expenses, the asset being impaired may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude restructuring expenses from adjusted EBITDA. Restructuring expenses primarily include employee severance and contract termination costs that are not related to acquisitions. The amount and/or frequency of these restructuring expenses are not part of our underlying business;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude litigation settlements from adjusted EBITDA, as well as any applicable income items or credit adjustments due to subsequent changes in estimates. This does not include our legal fees to defend claims, which are expensed as incurred;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude acquisition related expenses as the amount and/or frequency of these expenses are not part of our underlying business. Acquisition related expenses include transaction costs, which primarily consisted of financial advisory, banking, legal, and regulatory fees, and other consulting fees, incurred to complete the acquisition, employee-related expenses (severance cost and benefits) for terminated employees after the acquisition, and miscellaneous other acquisition related expenses incurred; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we exclude recognition of the step-up basis in inventory from acquisitions (i.e., the adjustment to record inventory from historic cost to fair value at acquisition) as the adjustment does not reflect the ongoing expense associated with sale of our products as part of our underlying business."]]
[[/GREPCENT_TABLE]]

​

Adjusted EBITDA for the years ended December 31, 2022 and 2021 was as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Years Ended December 31,"],["\u200b","2022","\u200b","2021"],["GAAP net (loss) income","$","(25,002)","\u200b","$","71,517"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense","\u200b","63,213","\u200b","\u200b","21,014"],["Interest income","\u200b","(1,047)","\u200b","\u200b","(12)"],["Benefit from income taxes","\u200b","(3,845)","\u200b","\u200b","(74,891)"],["Depreciation","\u200b","2,684","\u200b","\u200b","1,736"],["Amortization","\u200b","131,469","\u200b","\u200b","67,181"],["Impairment expense","\u200b","4,786","\u200b","\u200b","\u2014"],["Stock-based compensation expense","\u200b","22,874","\u200b","\u200b","24,255"],["Restructuring","\u200b","\u2014","\u200b","\u200b","4,578"],["Litigation settlements","\u200b","\u2014","\u200b","\u200b","2,935"],["Acquisition related expenses","\u200b","31,297","\u200b","\u200b","\u2014"],["Recognition of step-up basis in inventory","\u200b","39,584","\u200b","\u200b","\u2014"],["Total adjustments","$","291,015","\u200b","$","46,796"],["Adjusted EBITDA","$","266,013","\u200b","$","118,313"]]
[[/GREPCENT_TABLE]]

​

54

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Adjusted EBITDA was $266.0 million for 2022 compared to $118.3 million for 2021. The $147.7 million increase was primarily due to higher revenue and gross profit before excluded costs, partially offset by higher adjusted operating expenses, as discussed below.

​

The following is a summary of 2022 quarterly Adjusted EBITDA:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","First Quarter","\u200b","Second Quarter","\u200b","Third Quarter","\u200b","Fourth Quarter"],["GAAP net (loss) income","\u200b","$","(13,069)","\u200b","$","(5,191)","\u200b","$","457","\u200b","$","(7,199)"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense","\u200b","\u200b","5,831","\u200b","\u200b","17,761","\u200b","\u200b","19,046","\u200b","\u200b","20,575"],["Interest income","\u200b","\u200b","(4)","\u200b","\u200b","(5)","\u200b","\u200b","(11)","\u200b","\u200b","(1,027)"],["(Benefit from) provision for income taxes","\u200b","\u200b","(2,773)","\u200b","\u200b","(1,455)","\u200b","\u200b","975","\u200b","\u200b","(592)"],["Depreciation","\u200b","\u200b","715","\u200b","\u200b","656","\u200b","\u200b","488","\u200b","\u200b","825"],["Amortization","\u200b","\u200b","18,923","\u200b","\u200b","37,501","\u200b","\u200b","37,552","\u200b","\u200b","37,493"],["Impairment expense","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","4,786"],["Stock-based compensation expense","\u200b","\u200b","6,135","\u200b","\u200b","5,692","\u200b","\u200b","5,377","\u200b","\u200b","5,670"],["Acquisition related expenses","\u200b","\u200b","27,167","\u200b","\u200b","3,579","\u200b","\u200b","463","\u200b","\u200b","88"],["Recognition of step-up basis in inventory","\u200b","\u200b","603","\u200b","\u200b","12,638","\u200b","\u200b","10,519","\u200b","\u200b","15,824"],["Total adjustments","\u200b","$","56,597","\u200b","$","76,367","\u200b","$","74,409","\u200b","$","83,642"],["Adjusted EBITDA","\u200b","$","43,528","\u200b","$","71,176","\u200b","$","74,866","\u200b","$","76,443"]]
[[/GREPCENT_TABLE]]

​

Adjusted Operating Expenses

​

Adjusted operating expenses is a non-GAAP financial measure that represents GAAP operating expenses adjusted to exclude stock-based compensation expense, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations.

​

Adjusted operating expenses for the years ended December 31, 2022 and 2021 were as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Years Ended December 31,"],["\u200b","2022","\u200b","2021"],["GAAP operating expenses","$","176,169","\u200b","$","132,989"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stock-based compensation","\u200b","22,874","\u200b","\u200b","24,255"],["Restructuring","\u200b","\u2014","\u200b","\u200b","4,578"],["Litigation settlements","\u200b","\u2014","\u200b","\u200b","2,935"],["Acquisition related expenses","\u200b","31,297","\u200b","\u200b","\u2014"],["Total adjustments","$","54,171","\u200b","$","31,768"],["Adjusted operating expenses","$","121,998","\u200b","$","101,221"]]
[[/GREPCENT_TABLE]]

​

Adjusted operating expenses were $122.0 million for 2022 compared to $101.2 million for 2021. The $20.8 million increase was primarily driven by higher selling, general and administrative expenses, excluding stock-based compensation and acquisition related expenses, including:

​

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in sales, marketing, and consulting expenses of $10.7 million, primarily due to expenses incurred to support the commercialization of products acquired from BDSI in 2022, including Belbuca and Symproic, as well as for supporting the commercial launch of Elyxyb prior to its discontinuation in the fourth quarter of 2022;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in salaries, wages, and benefits (excluding stock-based compensation) of $3.5 million, primarily due to higher expense for corporate bonuses and incentive compensation due to improved company performance in 2022 compared to 2021;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in regulatory fees of $2.7 million primarily due to fees incurred for products acquired from BDSI in 2022 following the BDSI Acquisition;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in trainings, conferences, and meetings expenses of $1.9 million primarily due to certain annual internal meetings resuming in 2022 for the first time since the onset of the COVID-19 pandemic;"]]
[[/GREPCENT_TABLE]]

55

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[[GREPCENT_TABLE]]
[["","\u25cf","an increase in product taxes and fees of $1.7 million due to incurring product taxes and fees for products acquired from BDSI in 2022; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","an increase in insurance expense of $1.4 million, primarily due to higher premiums."]]
[[/GREPCENT_TABLE]]

​

The following is a summary of 2022 quarterly adjusted operating expenses:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","First Quarter","\u200b","Second Quarter","\u200b","Third Quarter","\u200b","Fourth Quarter"],["GAAP operating expenses","$","58,511","\u200b","$","41,254","\u200b","$","38,372","\u200b","$","38,032"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stock-based compensation","\u200b","6,135","\u200b","\u200b","5,692","\u200b","\u200b","5,377","\u200b","\u200b","5,670"],["Acquisition related expenses","\u200b","27,167","\u200b","\u200b","3,579","\u200b","\u200b","463","\u200b","\u200b","88"],["Total adjustments","\u200b","33,302","\u200b","\u200b","9,271","\u200b","\u200b","5,840","\u200b","\u200b","5,758"],["Adjusted operating expenses","$","25,209","\u200b","$","31,983","\u200b","$","32,532","\u200b","$","32,274"]]
[[/GREPCENT_TABLE]]

​

Adjusted Net Income and Adjusted Earnings Per Share

​

Adjusted net income is a non-GAAP financial measure that represents GAAP net income adjusted to exclude significant income and expense items that are non-cash or not indicative of ongoing operations, including consideration of the tax effect of the adjustments. Adjusted earnings per share is a non-GAAP financial measure that represents adjusted net income per share. Adjusted weighted-average shares - diluted is calculated in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security.

​

Adjusted net income and adjusted earnings per share for the years ended December 31, 2022 and 2021 were as follows:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Years Ended December 31,"],["\u200b","2022","\u200b","2021"],["GAAP net (loss) income","$","(25,002)","\u200b","$","71,517"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-cash interest expense","\u200b","8,285","\u200b","\u200b","3,406"],["Amortization","\u200b","131,469","\u200b","\u200b","67,181"],["Impairment expense","\u200b","4,786","\u200b","\u200b","\u2014"],["Stock-based compensation expense","\u200b","22,874","\u200b","\u200b","24,255"],["Restructuring","\u200b","\u2014","\u200b","\u200b","4,578"],["Litigation settlements","\u200b","\u2014","\u200b","\u200b","2,935"],["Acquisition related expenses","\u200b","31,297","\u200b","\u200b","\u2014"],["Recognition of step-up basis in inventory","\u200b","39,584","\u200b","\u200b","\u2014"],["Discrete deferred tax benefit from valuation allowance release","\u200b","\u2014","\u200b","\u200b","(62,649)"],["Income tax effect of above adjustments (1)","\u200b","(60,553)","\u200b","\u200b","(9,071)"],["Total adjustments","$","177,742","\u200b","$","30,635"],["Non-GAAP adjusted net income","$","152,740","\u200b","$","102,152"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted weighted-average shares \u2014 diluted (2)","\u200b","39,531,814","\u200b","\u200b","41,045,805"],["Adjusted earnings per share (2)","$","3.96","\u200b","$","2.58"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(1)","The income tax effect of the adjustments was calculated by applying our blended federal and state statutory rate of 26% to the adjustments that have a tax effect. As such, the non-GAAP effective tax rates for the years ended December 31, 2022 and 2021 were 25.4% and 22.8%, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Adjusted weighted-average shares - diluted were calculated using the \u201cif-converted\u201d method for the convertibles notes in accordance with ASC 260, Earnings per Share. As such, for periods where non-GAAP adjusted income (loss) was in an income position, adjusted earnings per share includes 4,925,134 shares related to the assumed conversion of the convertible notes and the associated cash interest expense added-back to non-GAAP adjusted net income, as well as other potentially dilutive securities to the extent that they are not antidilutive."]]
[[/GREPCENT_TABLE]]

​

56

Table of Contents

The following is a summary of 2022 quarterly adjusted net income and adjusted earnings per share:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","First Quarter","\u200b","Second Quarter","\u200b","Third Quarter","\u200b","Fourth Quarter"],["GAAP net (loss) income","$","(13,069)","\u200b","$","(5,191)","\u200b","$","457","\u200b","$","(7,199)"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-cash interest expense","\u200b","913","\u200b","\u200b","2,522","\u200b","\u200b","2,467","\u200b","\u200b","2,383"],["Amortization","\u200b","18,923","\u200b","\u200b","37,501","\u200b","\u200b","37,552","\u200b","\u200b","37,493"],["Impairment expense","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","4,786"],["Stock-based compensation expense","\u200b","6,135","\u200b","\u200b","5,692","\u200b","\u200b","5,377","\u200b","\u200b","5,670"],["Acquisition related expenses","\u200b","27,167","\u200b","\u200b","3,579","\u200b","\u200b","463","\u200b","\u200b","88"],["Recognition of step-up basis in inventory","\u200b","603","\u200b","\u200b","12,638","\u200b","\u200b","10,519","\u200b","\u200b","15,824"],["Discrete deferred tax benefit from valuation allowance release","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Income tax effect of above adjustments (1)","\u200b","(13,671)","\u200b","\u200b","(15,737)","\u200b","\u200b","(14,290)","\u200b","\u200b","(16,855)"],["Total adjustments","$","40,070","\u200b","$","46,195","\u200b","$","42,088","\u200b","$","49,389"],["Non-GAAP adjusted net income","$","27,001","\u200b","$","41,004","\u200b","$","42,545","\u200b","$","42,190"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted weighted-average shares \u2014 diluted (2)","\u200b","39,241,622","\u200b","\u200b","39,256,685","\u200b","\u200b","39,495,453","\u200b","\u200b","39,644,115"],["Adjusted earnings per share (2)","$","0.71","\u200b","$","1.07","\u200b","$","1.10","\u200b","$","1.09"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(1)","The income tax effect of the adjustments was calculated by applying our blended federal and state statutory rate of 26% to the adjustments that have a tax effect. As such, the non-GAAP effective tax rates for the three months ended March 31, June 30, September 30, and December 31, 2022 were 25.4%, 25.4%, 25.3%, and 25.4%, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Adjusted weighted-average shares - diluted were calculated using the \u201cif-converted\u201d method for the convertibles notes in accordance with ASC 260, Earnings per Share. As such, for periods where non-GAAP adjusted income (loss) was in an income position, adjusted earnings per share includes 4,925,134 shares related to the assumed conversion of the convertible notes and the associated cash interest expense added-back to non-GAAP adjusted net income, as well as other potentially dilutive securities to the extent that they are not antidilutive."]]
[[/GREPCENT_TABLE]]

​

The following is a summary of 2021 quarterly adjusted net income and adjusted earnings per share:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","First Quarter","\u200b","Second Quarter","\u200b","Third Quarter","\u200b","Fourth Quarter"],["GAAP net income (loss)","$","15,662","\u200b","$","72,843","\u200b","$","8,046","\u200b","$","(25,034)"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-cash interest expense","\u200b","919","\u200b","\u200b","875","\u200b","\u200b","833","\u200b","\u200b","779"],["Amortization","\u200b","16,795","\u200b","\u200b","16,795","\u200b","\u200b","16,796","\u200b","\u200b","16,795"],["Stock-based compensation expense","\u200b","6,879","\u200b","\u200b","6,516","\u200b","\u200b","5,948","\u200b","\u200b","4,912"],["Restructuring","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","4,578"],["Litigation settlements","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","2,935"],["Discrete deferred tax benefit from valuation allowance release","\u200b","\u2014","\u200b","\u200b","(62,649)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014"],["Income tax effect of above adjustments (1)","\u200b","(5,997)","\u200b","\u200b","10,270","\u200b","\u200b","(5,899)","\u200b","\u200b","(7,445)"],["Total adjustments","$","18,596","\u200b","$","(28,193)","\u200b","$","17,678","\u200b","$","22,554"],["Non-GAAP adjusted net income (loss)","$","34,258","\u200b","$","44,650","\u200b","$","25,724","\u200b","$","(2,480)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted weighted-average shares \u2014 diluted (2)","\u200b","41,160,092","\u200b","\u200b","41,286,853","\u200b","\u200b","41,186,308","\u200b","\u200b","34,123,309"],["Adjusted earnings (loss) per share (2)","$","0.86","\u200b","$","1.10","\u200b","$","0.65","\u200b","$","(0.07)"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","(1)","The income tax effect of the adjustments was calculated by applying our blended federal and state statutory rate of 26% to the adjustments that have a tax effect. As such, the non-GAAP effective tax rates for the three months ended March 31, June 30, September 30, and December 31, 2021 were 24.4%, 26.7%, 25.0%, and 24.8%, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Adjusted weighted-average shares - diluted were calculated using the \u201cif-converted\u201d method for the convertibles notes in accordance with ASC 260, Earnings per Share. As such, for periods where non-GAAP"]]
[[/GREPCENT_TABLE]]

57

Table of Contents

[[GREPCENT_TABLE]]
[["","","adjusted income (loss) was in an income position, adjusted earnings per share includes 4,925,134 shares related to the assumed conversion of the convertible notes and the associated cash interest expense added-back to non-GAAP adjusted net income, as well as other potentially dilutive securities to the extent that they are not antidilutive."]]
[[/GREPCENT_TABLE]]

​