10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2019

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

Commission File Number: 000-27163

SWK Holdings Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	77-0435679
(State or Other Jurisdiction of Incorporation   or Organization)	(I.R.S. Employer Identification No.)
14755 Preston Road, Suite 105   Dallas, TX	75254
(Address of Principal Executive Offices)	(Zip Code)

(Registrant’s Telephone Number, Including Area Code): (972) 687-7250

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

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. x YES    o NO

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). x YES    o NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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:

Large Accelerated Filer  o Accelerated Filer  o Non-Accelerated Filer  o Smaller Reporting Company  x Emerging Growth Company  o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o YES     x NO

As of November 14, 2019, there were 12,907,790 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

SWK Holdings Corporation

Form 10-Q

Quarter Ended September 30, 2019

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets—September 30, 2019 and December 31, 2018	1
	Unaudited Condensed Consolidated Statements of Income (Loss)—Three and Nine Months Ended September 30, 2019 and 2018	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2019 and 2018	3
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity—Three and Nine Months Ended September 30, 2019 and 2018	4
	Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2019 and 2018	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signatures	43
	Certifications

FORWARD-LOOKING STATEMENTS

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions, and include, but are not limited to, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Words such as “anticipate,” “believe,” “estimate,” “expects,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially (both favorably and unfavorably) from those expressed or forecasted in the forward-looking statements.

These risks and uncertainties include, but are not limited to, those described in Part II, Item 1A “Risk Factors” and elsewhere in this report. Forward-looking statements that were believed to be true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 

PART I. FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	September 30, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	4,486		$	20,227
Accounts receivable, net		2,452			2,195
Finance receivables, net		175,048			166,610
Marketable investments		1,946			—
Corporate debt securities		483			532
Deferred tax asset, net		20,098			22,684
Warrant assets		2,940			2,777
Intangible assets, net		32,703			—
Goodwill		4,602			—
Property and equipment, net		1,259			25
Other assets		1,518			612
Total assets	$	247,535		$	215,662
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	3,506		$	2,592
Contingent consideration payable		16,274			—
Warrant liability		127			13
Total liabilities		19,907			2,605
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Common stock, $0.001 par value; 250,000,000 shares authorized; 12,907,843 and 12,933,674 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		13			13
Additional paid-in capital		4,432,027			4,432,499
Accumulated deficit		(4,204,412	)		(4,219,455	)
Total stockholders’ equity		227,628			213,057
Total liabilities and stockholders’ equity	$	247,535		$	215,662

See accompanying notes to the unaudited condensed consolidated financial statements.

1

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Finance receivable interest income, including fees	$	6,198		$	5,882		$	21,243		$	19,463
Pharmaceutical development		149			—			149			—
Other		2			2			4			10
Total revenues		6,349			5,884			21,396			19,473
Costs and expenses:
Provision for credit losses		—			5,000			609			6,179
Impairment expense		—			7,799			—			7,799
Interest expense		79			79			259			80
Pharmaceutical manufacturing, research and development expense		286			—			286			—
Depreciation and amortization expense		358			4			368			12
General and administrative		2,718			1,247			5,301			3,637
Total costs and expenses		3,441			14,129			6,823			17,707
Other income (expense), net
Unrealized net gain (loss) on warrants		(1,152	)		819			(146	)		881
Unrealized net gain (loss) on equity securities		1,787			100			1,787			(565	)
Loss on write off of investments		—			(87	)		—			(87	)
Income (loss) before provision (benefit) for income taxes		3,543			(7,413	)		16,214			1,995
Provision (benefit) for income taxes		(614	)		(1,697	)		1,171			399
Consolidated net income (loss)	$	4,157		$	(5,716	)	$	15,043		$	1,596
Net income (loss) per share
Basic	$	0.32		$	(0.44	)	$	1.17		$	0.12
Diluted	$	0.32		$	(0.44	)	$	1.17		$	0.12
Weighted Average Shares
Basic		12,904			13,064			12,903			13,058
Diluted		12,908			13,064			12,906			13,062

See accompanying notes to the unaudited condensed consolidated financial statements.

2

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Consolidated net income (loss)	$	4,157	$	(5,716	)	$	15,043	$	1,596
Other comprehensive income, net of tax		—		—			—		—
Comprehensive income (loss)	$	4,157	$	(5,716	)	$	15,043	$	1,596

See accompanying notes to the unaudited condensed consolidated financial statements.

3

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data) 

	Common Stock					Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares			Amounts
Balances at December 31, 2018		12,933,674		$	13	$	4,432,499		$	(4,219,455	)	$	—	$	213,057
Stock-based compensation		—			—		102			—			—		102
Issuance of common stock		42,225			—		—			—			—		—
Repurchases of common stock in open market		(77,300	)		—		(745	)		—			—		(745	)
Net income		—			—		—			6,559			—		6,559
Balances at March 31, 2019		12,898,599			13		4,431,856			(4,212,896	)		—		218,973
Stock-based compensation		—			—		88			—			—		88
Issuance of common stock		11,000			—		—			—			—		—
Repurchases of common stock in open market		(5,200	)		—		(53	)		—			—		(53	)
Net income		—			—		—			4,327			—		4,327
Balances at June 30, 2019		12,904,399			13		4,431,891			(4,208,569	)		—		223,335
Stock-based compensation		—			—		147			—			—		147
Issuance of common stock		4,344			—		—			—			—		—
Repurchases of common stock in open market		(900	)		—		(11	)		—			—		(11	)
Net income		—			—		—			4,157			—		4,157
Balances at September 30, 2019		12,907,843		$	13	$	4,432,027		$	(4,204,412	)	$	—	$	227,628

	Common Stock				Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares		Amounts
Balances at December 31, 2017		13,053,422	$	13	$	4,433,589	$	(4,225,863	)	$	213		$	207,952
Stock-based compensation		—		—		79		—			—			79
Issuance of common stock		5,768		—		—		—			—			—
Cumulative effect of adoption of ASU 2016-01		—		—		—		213			(213	)		—
Net income		—		—		—		3,644			—			3,644
Balances at March 31, 2018		13,059,190		13		4,433,668		(4,222,006	)		—			211,675
Stock-based compensation		—		—		61		—			—			61
Issuance of common stock		4,725		—		—		—			—			—
Net income		—		—		—		3,668			—			3,668
Balances at June 30, 2018		13,063,915		13		4,433,729		(4,218,338	)		—			215,404
Stock-based compensation		—		—		56		—			—			56
Issuance of common stock		4,904		—		—		—			—			—
Net loss		—		—		—		(5,716	)		—			(5,716	)
Balances at September 30, 2018		13,068,819	$	13	$	4,433,785	$	(4,224,054	)	$	—		$	209,744

See accompanying notes to the unaudited condensed consolidated financial statements.

4

SWK HOLDINGS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Consolidated net income	$	15,043		$	1,596
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan credit losses		609			6,179
Amortization of debt issuance costs		140			—
Impairment expense		—			7,799
Deferred income taxes		1,171			399
Change in fair value of warrants		146			(881	)
Change in fair value of equity securities		(1,787	)		565
Gain (loss) on sale (write off) of investments		—			87
Loan discount amortization and fee accretion		122			(18	)
Interest paid-in-kind		(875	)		(144	)
Stock-based compensation		337			196
Interest income in excess of cash received		(82	)		(186	)
Depreciation and amortization expense		368			12
Changes in operating assets and liabilities:
Accounts receivable		(112	)		(227	)
Other assets		(252	)		15
Accounts payable and other liabilities		(1,434	)		(426	)
Net cash provided by operating activities		13,394			14,966
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(19,707	)		—
Investment in equity securities		(159	)		—
Investment in finance receivables		(41,039	)		(68,390	)
Repayment of finance receivables		32,630			42,542
Corporate debt security principal payment		49			55
Other		(100	)		(8	)
Net cash used in investing activities		(28,326	)		(25,801	)
Cash flows from financing activities:
Repurchases of common stock, including fees and expenses		(809	)		—
Debt issuance costs		—			(508	)
Net cash used in financing activities		(809	)		(508	)
Net decrease in cash and cash equivalents		(15,741	)		(11,343	)
Cash and cash equivalents at beginning of period		20,227			30,557
Cash and cash equivalents at end of period	$	4,486		$	19,214

See accompanying notes to the unaudited condensed consolidated financial statements.

5

SWK HOLDINGS CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. SWK Holdings Corporation and Summary of Significant Accounting Policies

Nature of Operations

SWK Holdings Corporation (the “Company”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, the Company commenced its strategy of building a specialty finance and asset management business. In August 2019, the Company commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. The Company’s operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” The Company allocates capital to each segment in order to generate income through the sales of life science products by third parties. The Company is headquartered in Dallas, Texas, and as of September 30, 2019, the Company had 31 employees.

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. However, at this time, under current law, the Company does not anticipate that the Finance Receivables or Pharmaceutical Development segments will generate sufficient income to permit the Company to utilize all of its NOLs prior to their respective expiration dates. As such, it is possible that the Company might pursue additional strategies that it believes might result in the ability to utilize more of the NOLs.

Finance Receivables Segment

The Company’s Finance Receivables segment strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. This segment is primarily focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. The Company has been deploying its assets to earn interest, fees, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis. In addition, through the Company’s wholly-owned subsidiary, SWK Advisors LLC, the Company provides non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life science finance. SWK Advisors LLC is registered as an investment advisor with the Texas State Securities Board. The Company intends to fund transactions through its own working capital and its revolving credit facility, as well as by building its asset management business by raising additional third-party capital to be invested alongside the Company’s capital.

The Company fills a niche that it believes is underserved in the sub-$50 million transaction size. Since many of its competitors that provide longer term, non-traditional debt and/or royalty-related financing options have much greater financial resources than the Company, they tend to not focus on transaction sizes below $50 million, as it is generally inefficient for them to do so. In addition, the Company does not believe that a sufficient number of other companies offer similar types of long-term financing options to fill the demand of the sub-$50 million market. As such, the Company believes it faces less competition from such investors in transactions that are less than $50 million.

As of November 14, 2019, and since inception of the strategy, the Company and its partners have executed transactions with 35 different parties under its specialty finance strategy, funding an aggregate $523.2 million in various financial products across the life science sector. The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property.

6

Pharmaceutical Development Segment

On August 26, 2019, the Company commenced its Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). SWK Products Holdings LLC (“SWK Products”), a wholly-owned subsidiary of the Company, entered into a merger agreement pursuant to which Enteris became a wholly-owned subsidiary of SWK Products. SWK Products paid $21.5 million to the former owner of Enteris (“Seller”) at closing, and according to the terms and conditions of the merger agreement, Enteris and Seller will share in the economics of certain Enteris assets per the following:

• Milestone and royalty proceeds of the Non-Exclusive License Agreement (“Cara License”) between Enteris and Cara Therapeutics, Inc. (“Cara”):

◦ Seller received 100 percent of the $8.0 million upfront amount paid upon execution of the Cara License;

◦ Seller will receive 40 percent of the first milestone payment, with Enteris to receive 60 percent of such payment;

◦ Seller will receive 75 percent of any remaining milestone and royalty payments until Seller receives an aggregate $32.75 million, excluding the first milestone payment, with Enteris entitled to the remaining 25 percent; and

◦ All proceeds thereafter will be split evenly between Enteris and Seller.

• Certain profits arising from milestones and royalties associated with the out-licensing of three of Enteris’ wholly-owned pharmaceutical development candidates, likely from the out-license of such products to third party pharmaceutical companies:

◦ For Ovarest and Tobrate, after Enteris recovers 100 percent of all investment in such products, Seller will receive 60 percent of the first $5.0 million of the profit from each product until Seller receives an aggregate of $3.0 million for each product, and thereafter Enteris will receive 70 percent of any remaining profits, per product; and

◦ For the octreotide pharmaceutical development product candidate, after Enteris recovers 300 percent of all investment in the octreotide product candidate, Seller will be entitled to receive 10 percent of any remaining profits from that product, with Enteris receiving the remaining 90 percent.

Any amount of contingent consideration paid to the Seller pursuant to the Cara License, and the Ovarest, Tobrate and the octreotide pharmaceutical development product candidate profit splits, will be paid out of payments received from third parties for each respective program.

Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence^® platform. Since its founding in 2013, Enteris has advanced multiple internal and external programs leveraging Peptelligence^®, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation. Peptelligence^® utilizes a unique multifaceted approach to increase the solubility and absorption of peptides and small molecules, addressing the complex challenges regarding solubility and permeability of therapeutics with low oral bioavailability. Peptelligence^® is protected by an extensive patent estate that extends until 2036.

The Company’s strategy is to utilize the Peptelligence^® platform to create a wholly-owned portfolio of milestone and royalty income by out-licensing its technology in two ways. First, the Company intends to out-license its technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, the Company intends to out-license to pharmaceutical companies its internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence^® enables oral delivery, resulting in meaningful improvements for patients and caregivers. The Company also generates income by providing customers pharmaceutical development services, formulation and manufacturing with the ultimate goal of generating new out-license agreements of the technology.

Peptelligence^® is the subject of several active external development programs, the most advanced of which include Taurus Development Company’s TBRIA, an oral calcitonin for patients with postmenopausal osteoporosis, and an oral formulation of Cara’s KORSUVA™, a potent peripheral kappa opioid receptor agonist for chronic pain and pruritus, currently in Phase II clinical development.

The Company’s internal product pipeline consists of Ovarest^® (oral leuprolide tablet), currently being evaluated for endometriosis, which has demonstrated positive results in several clinical studies, including a Phase 2 trial, and Tobrate™ (oral tobramycin tablet) for the treatment of uncomplicated urinary tract infection (uUTI). A third internal compound, octreotide, is currently in preclinical development. The Company has not yet out-licensed any of its internal product pipeline.

7

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. The Company consolidates a variable interest entity (“VIE”) when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts and transactions.

The Company owns interests in various partnerships and limited liability companies, or LLCs. The Company consolidates its investments in these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even though the Company’s ownership may be less than 50 percent, the related governing agreements provide the Company with broad powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s consolidated financial statements, it would have no effect on its operations and/or total stockholders’ equity attributable to the Company.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019.

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts for prior periods have been reclassified to be consistent with current year presentation and have no impact on previously reported total assets, total stockholders' equity or net income (loss).

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition; stock-based compensation; valuation of accounts receivable; impairment of financing receivables; long-lived assets; property, plant and equipment; intangible assets; goodwill; valuation of warrants; contingent consideration; income taxes; and contingencies and litigation, among others. Some of these judgments can be subjective and complex, and consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

8

The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturns, can increase the uncertainty already inherent in the Company’s estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

The most significant estimates and assumptions are used to determine amounts and values of, but are not limited to: revenue recognition related to product and collaboration revenue; acquisition date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill; licensing agreements; in-process research and development; other intangible assets; contingent consideration; and income taxes, inclusive of a valuation allowance.

Business Combinations

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within selling, general and administrative expenses. Refer to Note 3, Business Combinations, for further information regarding our acquisition of Enteris during the three months ended September 30, 2019.

Segment Information

The Company earns revenues from its two U.S.-based business segments: as a specialty finance and asset management business offering customized financing solutions to a broad range of life-sciences companies, and as of August 26, 2019, the Company’s offering of oral therapeutic formulation solutions built around Enteris’ pharmaceutical Peptelligence^® platform, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules in an enteric-coated tablet formulation.

The financial results of Enteris are included in the Pharmaceutical Development segment as of the acquisition date.

Revenue Recognition

The Company’s Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners, under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

Goodwill and Intangible Assets

The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill arising from the Enteris acquisition has been allocated to the Pharmaceutical Development segment.

9

Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.

Inventory

Inventories are stated at the lower of cost or net realizable value, valued at specifically identified cost which approximates the first-in, first-out (“FIFO”) method. The components of inventory include raw materials of $0.2 million and are reflected in Other Assets in the Unaudited Condensed Consolidated Balance Sheets.

Property and Equipment, Net

Property and equipment are recorded at cost less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in current liabilities. When property is retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in Other Income, Net (within Operating Income) in the Unaudited Condensed Consolidated Statements of Income (Loss).

Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows:

Asset	Estimated Useful Life
Leasehold improvements	Lesser of lease term or useful life
Furniture, fixtures, and equipment	3 to 10 years

Deferred Revenue and Deferred Costs

Deferred revenue includes amounts that have been billed per the contractual terms but have not been recognized as revenue. The Company classifies as current the portion of deferred revenue that are expected to be recognized within one year from the balance sheet date. Deferred revenue of $0.3 million is included in accounts payable and other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets.

Research and Development

Research and development expenses include the costs associated with internal research and development and research and development conducted for the Company by third parties. These costs primarily consist of salaries, pre-clinical and clinical trials, outside consultants, and supplies. All research and development costs discussed above are expensed as incurred. Third-party expenses reimbursed under research and development contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research and development expense in the Unaudited Condensed Consolidated Statements of Income (Loss).

10

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 updates the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, (ii) modifying certain requirements, including clarifying that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date and (iii) adding certain requirements, including disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for any eliminated or modified disclosures. The Company is currently evaluating the new guidance but believes it will not have a material impact on its consolidated financial statements, as the Company has had no historical transfers between hierarchies.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The new standard adds an impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of losses. The ASU describes the impairment allowance as a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be measured in a manner similar to current GAAP; however, the amendments in this update require that credit losses be presented as an allowance rather than as a write-down, which will allow an entity the ability to record reversals of credit losses in current period net income. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The Company is currently evaluating the new guidance but believes it is likely to incur more upfront losses on its portfolio under the new CECL model.

In February 2016, the FASB issued ASU No. 2016-02, Leases, as amended by subsequent ASUs (Topic 842). ASU 2016-02 supersedes guidance related to accounting for leases and provides for the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The objective of the ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. ASU 2016-02 does not fundamentally change lessor accounting; however, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within GAAP. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective transition method, which permits application of the new standard on the adoption date as opposed to the earliest comparative period presented in the financial statements. In addition, the Company elected to use the available practical expedient package, and therefore did not reassess classification of its existing leases. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

11

Note 2. Net Income (Loss) per Share

Basic net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock. Diluted net income per share is computed using the weighted-average number of outstanding shares of common stock, and when dilutive, shares of common stock issuable upon exercise of options and warrants deemed outstanding using the treasury stock method.

The following table shows the computation of basic and diluted net income (loss) per share for the following periods (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Numerator:
Net income (loss)	$	4,157	$	(5,716	)	$	15,043	$	1,596
Denominator:
Weighted-average shares outstanding		12,904		13,064			12,903		13,058
Effect of dilutive securities		4		—			3		4
Weighted-average diluted shares		12,908		13,064			12,906		13,062
Basic net income (loss) per share	$	0.32	$	(0.44	)	$	1.17	$	0.12
Diluted net income per share	$	0.32	$	(0.44	)	$	1.17	$	0.12

For the three months ended September 30, 2019 and 2018, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 436,000 and 290,000, respectively, have been excluded from the calculation of diluted net income per share as all such securities were anti-dilutive. For the nine months ended September 30, 2019 and 2018, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately 428,000 and 271,000, respectively, have been excluded from the calculation of diluted income per share as all such securities were anti-dilutive.

12

Note 3. Business Combinations

On August 26, 2019, Enteris, a biotechnology company offering innovative formulation solutions utilizing its proprietary oral drug delivery technology, merged with a wholly-owned subsidiary of the Company, with Enteris continuing as the surviving entity. The total merger consideration was $36.3 million, which included contingent consideration of $16.3 million. The merger consideration is subject to certain adjustments with respect to cash, debt, working capital, transaction expenses and the value of the contingent consideration agreement entered into, in connection with the transaction.

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the merger consideration was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The excess of the merger consideration over the estimated fair value of the net assets of Enteris was recorded as goodwill, which consists largely of synergies and the acquisition of intangible assets. The resulting goodwill is not expected to be deductible for tax purpose.

The allocation of the merger consideration has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, including tax estimates and potential indemnities, may be revised as additional information becomes available. The Company will finalize the acquisition accounting within the required measurement period of one year.

The following table summarizes the estimated allocation of the merger consideration (at fair value) to the assets and liabilities of Enteris as of August 26, 2019 (the date of acquisition) (in thousands):

	Initial Fair Value Estimate
Cash	$	334
Accounts receivable		145
Inventory		274
Prepaid expenses and other current assets		121
Property and equipment		1,179
Patents and other intangible assets		33,000
Right of use operating lease asset		348
Other assets		50
Goodwill		4,602
Accounts payable		(254	)
Accrued expenses and other current liabilities		(1,360	)
Deferred revenue		(385	)
Lease liability		(348	)
Deferred tax liability		(1,415	)
Total purchase price	$	36,289

Revenues and net loss of Enteris from August 26, 2019 (the date of acquisition) through September 30, 2019 were $0.1 million and $0.8 million, respectively. Acquisition-related expenses are expensed as incurred.

13

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2018, the earliest period presented herein (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Revenues	$	14,664	$	6,495		$	34,355	$	22,160
Net income (loss)	$	9,722	$	(7,573	)	$	19,775	$	(3,568	)
Net income (loss) per share - basic and diluted	$	0.75	$	(0.58	)	$	1.53	$	(0.27	)

The pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The pro forma adjustments include incremental amortization and depreciation of intangible assets and property and equipment based on preliminary values of each asset and acquisition-related expenses. The pro forma financial information excludes  non-recurring acquisition-related expenses. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

Goodwill

The change in the carrying amount of goodwill from December 31, 2018 to September 30, 2019 is as follows, with the addition solely due to the acquisition of Enteris (in thousands):

	Net Book Value
December 31, 2018	$	—
Acquisition of Enteris		4,602
September 30, 2019	$	4,602

As the goodwill is attributable to the acquisition of Enteris, the Company will perform the annual goodwill impairment test during the fourth quarter of every year, commencing in 2020.

Intangible Assets

As of September 30, 2019, the gross book value and accumulated amortization of intangible assets were as follows (in thousands, except estimated useful life data):

	As of September 30, 2019
	Gross Book Value		Accumulated Amortization		Net Book Value		Estimated Useful Life
Cara licensing agreement	$	31,500	$	316	$	31,184		10
In-process research and development		1,017		—		1,017		N/A
Trade names and trademarks		250		2		248		10
Customer relationships		250		2		248		10
		33,017		320		32,697
Deferred patent costs		6		—		6		N/A
Total intangibles	$	33,023	$	320	$	32,703

Amortization expense from the acquisition of Enteris was $0.3 million for the period ended September 30, 2019 and was recorded in depreciation and amortization expense. Based on amounts recorded at September 30, 2019, the Company will recognize acquired intangible asset amortization as follows (in thousands):

Remainder of 2019	$	800
2020		3,217
2021		3,200
2022		3,200
2023		3,200
Thereafter		19,080
	$	32,697

14

Note 4. Finance Receivables, Net

Finance receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized deferred fees and costs. Unearned income and deferred fees and costs are amortized to interest income based on all cash flows expected using the effective interest method.

As of September 30, 2019, the Company had a provision for credit loss allowance of $6.8 million. Of the total $6.8 million, $1.2 million and $0.6 million are associated with the Company’s Cambia^® and Besivance^® royalties, respectively. The remaining $5.0 million is related to the ABT Molecular Imaging, Inc., now known as Best ABT, Inc. (“Best”), second lien term loan that was recognized in order to reflect the Best royalty at its estimated fair value of $5.8 million. The carrying values of finance receivables are as follows (in thousands):

Portfolio	September 30, 2019			December 31, 2018
Term loans	$	149,858		$	136,379
Royalty purchases		31,978			36,410
Total before allowance for credit losses		181,836			172,789
Allowance for credit losses		(6,788	)		(6,179	)
Total carrying value	$	175,048		$	166,610

The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands):

	September 30, 2019						December 31, 2018
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
Term loans	$	8,337	$	141,521	$	149,858	$	8,337	$	128,042	$	136,379
Royalty purchases, net of credit loss allowance		9,303		15,887		25,190		5,784		24,447		30,231
Total carrying value	$	17,640	$	157,408	$	175,048	$	14,121	$	152,489	$	166,610

As of September 30, 2019, the Company had three finance receivables in nonaccrual status: (a) the term loan to B&D Dental Corporation (“B&D”), with a net carrying value of $8.3 million, (b) the Best royalty, with a net carrying value of $5.8 million, and (c) the Tissue Regeneration Therapeutics, Inc. (“TRT”) royalty, with a net carrying value of $3.6 million. As of December 31, 2018, the Company had two finance receivables in nonaccrual status: (a) the term loan to B&D, with a net carrying value of $8.3 million, and (b) the Best royalty, with a net carrying value of $5.8 million. Although in nonaccrual status, neither the term loan nor the royalties were considered impaired as of September 30, 2019. The Company collected $33,000 on one of its nonaccrual royalties during the nine months ended September 30, 2019.

Besivance

On April 2, 2013, the Company purchased an effective 2.4 percent royalty on sales of Besivance^® from InSite Vision for $6.0 million. Besivance is marketed by Bausch & Lomb, formerly known as Valeant Pharmaceuticals. Sales performance of Besivance^® has weakened primarily due to substantial declines in prescription volumes, which in conjunction with elevated sales chargebacks and various rebates (gross sales to net sales deductions), has resulted in material reductions in the product’s net sales and associated royalties payable to the Company. During the three months ended March 31, 2019, the Company reduced its expectations for future royalty receipts and recognized an allowance for credit loss on the royalty purchase of $0.6 million.

TRT

On June 13, 2013, the Company purchased royalties from TRT related to its technology licenses in the family cord banking services sector for $2.0 million, and on October 20, 2014, funded an additional $1.25 million upon the achievement of royalty receipts-based milestones. During the quarter ended March 31, 2016, royalty payments from the primary U.S. licensee ended as a result of the licensee terminating a technology license. The Company and TRT continue to evaluate both options in regard to enforcing TRT’s intellectual property rights against this licensee, as well as seeking additional U.S. licensees. TRT’s Canadian licensee continues to pay royalties. The Company is in discussions with TRT to restructure the purchase agreement. Given uncertainties regarding the outcome of the negotiations and the ultimate timing of cash flows related to the U.S. intellectual property, the Company has placed the TRT royalty on non-accrual status, although does not consider it impaired. The Company evaluated several factors in this determination, including input from intellectual property counsel regarding the strength of the related intellectual property and continued receipt of Canadian licensee royalty payments.

15

Note 5. Property and Equipment, Net

Property and equipment, net consisted of the following as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019			December 31, 2018
Production equipment and other	$	1,092		$	17
Furniture and fixtures		87			48
Leasehold improvements		143			—
Capitalized software		28			7
Total		1,350			72
Less accumulated depreciation and amortization		(91	)		(47	)
Property and equipment, net	$	1,259		$	25

For the three months ended September 30, 2019 and 2018, depreciation and amortization of property and equipment was $36,400 and $2,400, respectively. For the nine months ended September 30, 2019 and 2018, depreciation of property and equipment was $43,800 and $9,300, respectively.

16

Note 6. Marketable Investments and Corporate Debt Securities

Investments in corporate debt securities and marketable investments at September 30, 2019 and December 31, 2018 consist of the following (in thousands):

	September 30, 2019		December 31, 2018
Corporate debt securities	$	483	$	532
Marketable investments		1,946		—
Total	$	2,429	$	532

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities as of September 30, 2019 and December 31, 2018, are as follows (in thousands):

September 30, 2019	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	483	$	—	$	—	$	483

December 31, 2018	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	532	$	—	$	—	$	532

The following table presents unrealized net losses on equity securities as prescribed by ASC 321, “Investment - Equity Securities.” ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” was adopted on January 1, 2018, at which time a cumulative effect adjustment of $213,000 was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Realized loss on write off of equity securities	$	—	$	(4	)	$	—	$	(4	)
Unrealized net gain (loss) on equity securities reflected in the Unaudited Condensed Consolidated Statements of Income (Loss)		1,787		100			1,787		(565	)

Marketable Investments

                As of September 30, 2019, the Company’s marketable investments include 96,810 shares of Misonix, Inc. (“Misonix”) common stock received pursuant to Misonix’s purchase of Solsys Medical, Inc. (“Solsys”) on September 27, 2019. During the three months ended September 30, 2019 and prior to the acquisition, the Company exercised its Solsys warrants in a cashless transaction to purchase Solsys preferred stock and exercised its preemptive right to protect against dilution of its Solsys equity position. Of the total 109,472 shares of Misonix common stock received for its Solsys equity interests, 12,662 shares are held in escrow by Misonix, are subject to reduction based on terms of the acquisition agreement, and any shares remaining at the end of the escrow period will be released within 15 to 18 months post closing of the acquisition. The 96,810 shares are subject to a one year lock-up that expires on September 27, 2020. As of September 30, 2019, the 96,810 shares of Misonix common stock are reflected at their estimated fair value of $1.9 million.

Debt Securities

On July 9, 2013, the Company entered into a note purchase agreement to purchase, at par, $3.0 million of a total of $100.0 million aggregate principal amount of senior secured notes due in November 2026.  The agreement allows the first interest payment date to include paid-in-kind notes for any cash shortfall, of which the Company received $0.1 million on November 15, 2013. The notes are secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products. The senior secured notes have been placed on non-accrual status as of June 30, 2016. Total cash collected during the nine months ended September 30, 2019 was $48,000 which was credited to the notes’ carrying value. As of September 30, 2019, the notes are reflected at their estimated fair value of $0.5 million and are included in corporate debt securities in the Condensed Consolidated Balance Sheets. 

17

Note 7. Revolving Credit Facility

On June 29, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with State Bank and Trust Company as a lender and the administrative agent (“State Bank”) pursuant to which State Bank will provide the Company with up to a $20 million revolving senior secured credit facility, which the Company can draw down and repay until maturity, subject to borrowing base eligibility. The Loan Agreement matures on June 29, 2021.

The Loan Agreement accrues interest at the Daily LIBOR Rate, with a floor of 1.00 percent, plus a 3.25 percent margin and principal is repayable in full at maturity. Interest is generally required to be paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of 0.50 percent, which will be recorded as interest expense. The Company paid $0.5 million in fees at closing, which have been capitalized as deferred financing costs and are being amortized on a straight-line basis over the term of the Loan Agreement.

The Loan Agreement has an advance rate against the Company’s finance receivables portfolio, including 85 percent against senior first lien loans, 70 percent against second lien loans and 50 percent against royalty receivables, subject to certain eligibility requirements as defined in the Loan Agreement. The Loan Agreement contains certain affirmative and negative covenants including minimum asset coverage and minimum interest coverage ratios.

During the nine months ended September 30, 2019 and 2018, the Company recognized $0.3 million and $0.1 million, respectively, of interest expense. As of September 30, 2019, no amount was outstanding under the Loan Agreement, and $20.0 million was available for borrowing.

Note 8. Related Party Transactions

On September 6, 2013, in connection with entering into a credit facility, the Company issued warrants to an affiliate of a stockholder, Carlson Capital, L.P. (the “Stockholder”), for 100,000 shares of the Company’s common stock at a strike price of $13.88 per share. The warrants have a price anti-dilution mechanism that was triggered by the price that shares were sold by the Company in a rights offering in 2014, and as a result, the strike price of the warrants was reduced to $13.48 per share.

Due to certain provisions within the warrant agreement, the warrants meet the definition of a derivative and do not qualify for a scope exception, as it is not considered indexed to the Company’s stock. As such, the warrants are reflected as a warrant liability in the unaudited condensed consolidated balance sheets. The Company recorded a nominal loss for the nine months ended September 30, 2019. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

	September 30, 2019			December 31, 2018
Dividend rate		—			—
Risk-free rate		1.8	%		2.5	%
Expected life (years)		0.9			1.7
Expected volatility		29.1	%		18.6	%

The changes on the value of the warrant liability during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	13
Issuances		—
Changes in fair value		114
Fair value – September 30, 2019	$	127

18

Note 9. Commitments and Contingencies

Unfunded Commitments

As of September 30, 2019, the Company’s unfunded commitments were as follows (in millions):

4Web, Inc.	$	3.0
Aimmune Therapeutics, Inc.		3.8
Harrow Pharmaceuticals, Inc.		3.0
Total unfunded commitments	$	9.8

All unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics on or before a specified date or period of time per the terms of the royalty purchase or credit agreements, and in the case of loan transactions, are only subject to being advanced as long as an event of default does not exist.

19

Note 10. Stockholders’ Equity

During the nine months ended September 30, 2019 and 2018, the Company’s Board of Directors (the “Board”) approved compensation for Board services by granting 10,069 and 15,397 shares, respectively, of common stock as compensation for the non-employee directors. During the nine months ended September 30, 2019 and 2018, the Company recorded approximately $0.1 million and $0.2 million, respectively, in Board stock-based compensation expense. The aggregate stock-based compensation expense, including the quarterly Board grants, recognized by the Company for the nine months ended September 30, 2019 and 2018 was $0.3 million and $0.2 million, respectively.

The Company’s Chief Executive Officer, (“CEO”) received a grant of options to acquire up to 75,000 shares of the Company’s common stock, effective as of January 28, 2019. The options have a per-share exercise price of $12.50. The options are subject to vesting in equal annual installments over a three-year period based on the CEO’s continued employment with the Company. The options are subject to accelerated vesting upon a termination of the CEO’s employment if the CEO’s employment is terminated by the CEO for “Good Reason” as defined in the CEO’s employment agreement effective as of January 1, 2019. Furthermore, the 2012 and 2014 options received by the CEO were amended to extend the expiration dates to December 31, 2021. The options are forfeited and of no force and effect to the extent the options have not vested or become exercisable on or before December 31, 2021.

The CEO also received a restricted stock award of 37,500 shares of restricted stock, subject to terms and conditions of the award agreement and the 2010 Stock Incentive Plan. The restricted stock is subject to vesting in equal annual installments over a three-year period but only to the extent the CEO is employed by or performing services for the Company. However, the restricted stock shall vest upon the CEO’s death, “Disability” and “Good Reason,” as defined in the Employment Agreement between the Company and the CEO effective January 1, 2019.

On December 21, 2018, the Board authorized a share repurchase program under which the Company was authorized to repurchase up to $3.5 million of the Company’s outstanding shares of common stock, or approximately 312,491 common shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act. The December 21, 2018 share repurchase program expired on May 31, 2019. On September 6, 2019, the Board authorized another share repurchase program of up to $2.1 million of the Company’s outstanding shares of common stock, with the repurchase program set to expire on February 29, 2020. Please refer to Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds for further details regarding the share repurchase program.

20

Note 11. Fair Value Measurements

The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3	Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.

Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels during the nine months ended September 30, 2019.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in affiliates.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Cash and cash equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Marketable Investments

Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices).

Finance Receivables

The fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the finance receivables. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. These receivables are classified as Level 3. Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below.

Contingent Consideration

The Company recorded contingent consideration related to the August 2019 acquisition of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to the Cara License, as well as certain profits arising from milestones and royalties associated with the out-licensing of three of Enteris’ wholly-owned pharmaceutical development candidates, likely from the out-license of such products to third party pharmaceutical companies. Please refer to the Pharmaceutical Development Segment - Acquisition of Enteris BioPharma, Inc. section of Note 1 for further details on the Company’s acquisition of Enteris and the contingent consideration.

21

The fair value measurements of contingent consideration obligations and the related intangible assets arising from business combinations are classified as Level 3 estimates under the fair value hierarchy as these items have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

During the nine months ended September 30, 2019, the Company recorded a contingent consideration liability of $16.3 million.

Marketable Investments and Derivative Securities

Marketable Investments

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities would be classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets or broker quotes utilizing observable inputs, and accordingly these securities would be classified as Level 2. If market prices are not available and there are no observable inputs, then fair value would be estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes. Such securities would be classified as Level 3, if the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company checks the validity of received prices based on comparison to prices of other similar assets and market data such as relevant bench mark indices. Available-for-sale securities are measured at fair value on a recurring basis, while securities with no readily available fair market value are not, but estimates of fair value are reflected below.

Derivative Securities

For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, would be classified as Level 1. For non-exchange traded derivatives, fair value is based on option pricing models and are classified as Level 3.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,940	$	—	$	—	$	2,940
Marketable investments		1,946		1,946		—		—
Corporate debt security		483		—		—		483
Financial Liabilities:
Contingent consideration payable	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		—		—		127

22

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical  Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,777	$	—	$	—	$	2,777
Corporate debt securities		532		—		—		532
Financial Liabilities:
Warrant liability	$	13	$	—	$	—	$	13

The changes on the value of the warrant assets during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	2,777
Issued		195
Canceled		—
Change in fair value		(32	)
Fair value – September 30, 2019	$	2,940

The Company holds warrants issued to the Company in conjunction with certain term loan investments. These warrants meet the definition of a derivative and are included in the unaudited condensed consolidated balance sheets. The fair values for warrants outstanding, which do not have a readily determinable value, are measured using the Black-Scholes option pricing model. The following ranges of assumptions were used in the models to determine fair value:

	September 30, 2019			December 31, 2018
Dividend rate range		—			—
Risk-free rate range		1.6	%		2.5% to 2.6	%
Expected life (years) range		4.8 to 7.6			4.8 to 7.9
Expected volatility range		69.0% to 92.7	%		67.6% to 101.8	%

As of September 30, 2019 and December 31, 2018, the Company had two royalties, Besivance^® and Cambia^®, that were deemed to be impaired based on reductions in carrying values in prior periods. The following table presents these royalties measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Impaired royalties	$	6,314	$	—	$	—	$	6,314
December 31, 2018
Impaired royalties	$	8,227	$	—	$	—	$	8,227

23

There were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments.

As of September 30, 2019 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	4,486	$	4,486	$	4,486	$	—	$	—
Finance receivables		175,048		175,048		—		—		175,048
Marketable investments		1,946		1,946		1,946		—		—
Corporate debt security		483		483		—		—		483
Warrant assets		2,940		2,940		—		—		2,940
Financial Liabilities
Contingent consideration payable	$	16,274	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		127		—		—		127

As of December 31, 2018 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	20,227	$	20,227	$	20,227	$	—	$	—
Finance receivables		166,610		166,610		—		—		166,610
Corporate debt security		532		532		—		—		532
Warrant assets		2,777		2,777		—		—		2,777
Financial Liabilities
Warrant liability	$	13	$	13	$	—	$	—	$	13

24

Note 12. Segment Information

Selected financial and descriptive information is required to be provided about reportable operating segments, considering a “management approach” concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the Company for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the Company’s internal organization, focusing on financial information that a Company’s chief operating decision-makers use to make decisions about the Company’s operating matters.

As described in Note 1, “SWK Holdings Corporation and Summary of Significant Accounting Policies,” the Company has determined it has two reportable segments: Finance Receivables and Pharmaceutical Development, and each are individually managed and provide separate services. Revenues by segment represent revenues earned on the services offered within each segment.

Segment performance is evaluated based on several factors, including income (loss) from continuing operations before income. Management uses this measure of profit (loss) to evaluate segment performance because the Company believes this measure is indicative of performance trends and the overall earnings potential of each segment.

The following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands):

	Three Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	6,198	$	149	$	2		$	6,349
Provision for credit losses and impairment expense		—		—		—			—
Interest expense		79		—		—			79
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		353		5			358
Other income (expense), net		734		—		(99	)		635
Income tax (benefit) expense		—		—		(614	)		(614	)
	Nine Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	21,243	$	149	$	4		$	21,396
Provision for credit losses and impairment expense		609		—		—			609
Interest expense		259		—		—			259
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		354		14			368
Other income (expense), net		1,755		—		(114	)		1,641
Income tax (benefit) expense		—		—		1,171			1,171

Included in Holdings Company and Other are the expenses of the parent holding company and certain other enterprise-wide overhead costs, including public company costs and non-Enteris corporate employees, which have been included for purposes of reconciling to the consolidated amounts.

Of the $2.4 million and $4.7 million included in Holdings Company and Other general and administrative expense for the three and nine months ended September 30, 2019, respectively, $1.1 million relates to the acquisition of Enteris for both the three and nine months ended September 30, 2019. 

25

Note 13. Subsequent Events

Cheetah Medical, Inc.

On October 25, 2019, Cheetah Medical, Inc. (“Cheetah”) repaid its credit facility with SWK Funding. SWK Funding received approximately $11.4 million at pay-off, which included $1.2 million of exit fees and $0.2 million of warrant proceeds. 

Eton Pharmaceuticals, Inc. 

                On November 13, 2019, SWK Funding entered into a credit agreement pursuant to which SWK Funding provided to Eton Pharmaceuticals, Inc. (“Eton”) a term loan in the maximum principal amount of $10.0 million. SWK Funding funded $5.0 million at closing. The loan matures on November 13, 2024. The loan bears interest at the greater of (a) three-month LIBOR and (b) 2.0 percent, plus a margin of 10.0 percent, payable in cash, quarterly in arrears. In connection with the loan, SWK Funding also received a warrant to purchase shares of Eton common stock.

26

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, and the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2018 (“Annual Report”), as well as our unaudited condensed consolidated financial statements and the accompanying notes included in this report. 

Overview

We have organized our operations into two segments: Finance Receivables and Pharmaceutical Development. These segments reflect the way the Company evaluates it business performance and manages its operations. Please refer to Item 1. Financial Statements, Notes 1 and 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information regarding segment information.

Finance Receivables Segment

In our Finance Receivables segment, we evaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (together “life science”) by tailoring financial solutions to the needs of our business partners.

Our investment objective is to maximize our portfolio total return and thus increase our net income and book value by generating income from three sources:  (1) primarily owning or financing through debt investments, royalties or revenue interests generated by the sales of life science products and related intellectual property, (2) receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector, and (3) to a lesser extent, realizing capital appreciation from equity-related investments in the life science sector.

We primarily provide capital in exchange for an interest in an existing revenue stream, which can take several forms, but is most commonly either a royalty derived from the sales of a life science product from the marketing efforts of a third party or from the marketing efforts of a partner company. Our structured debt investments may include warrants or other features, giving us the potential to realize enhanced returns on a portion of our portfolio.

Pharmaceutical Development Segment

Acquisition of Enteris

On August 26, 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris. SWK Products, our wholly-owned subsidiary, entered into a merger agreement pursuant to which Enteris became our wholly-owned subsidiary. Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence^® platform. Since its founding in 2013, Enteris has advanced multiple internal and external programs leveraging Peptelligence^®, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation.

Our strategy is to utilize the Peptelligence^® platform to create a wholly-owned portfolio of milestone and royalty income, and thus increase our net income and book value, by out-licensing our technology in two ways. First, we intend to out-license our technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, we intend to out-license to pharmaceutical companies our internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence^® enables oral delivery, resulting in meaningful improvements for patients and caregivers. We also generate income by providing customers pharmaceutical development services, formulation and manufacturing with the ultimate goal of generating new out-license agreements of our technology.

27

Finance Receivables Portfolio Overview

The table below provides an overview of our outstanding finance receivables transactions as of, and for the three and nine months ended September 30, 2019 (in thousands, except rate, share and per share data).

Royalty Purchases and Financings	License Technology	Footnote	Funded Amount		GAAP Balance		Rate		Revenue Recognized
									YTD		Q3
Beleodaq®	Oncology treatment		$	7,600	$	6,649	N/A		$	933	347
Besivance®	Ophthalmic antibiotic	(1), (2)	6,000		1,084		N/A		21		(18	)
Best ABT, Inc.	Oncology diagnosis	(3)	5,784		5,751		N/A		—		—
Cambia®	NSAID migraine treatment	(2)	8,500		5,230		N/A		470		71
Forfivo XL®	Depressive disorder treatment		6,000		2,206		N/A		770		117
Narcan®	Opioid overdose treatment		17,500		718		N/A		1,181		447
Secured Royalty Financing (Corporate Debt Security)	Women’s health	(3)	3,000		483		11.5	%	—		—
Tissue Regeneration Therapeutics, Inc.	Umbilical cord banking	(3)	3,250		3,552		N/A		110		—

			Maturity Date			GAAP Balance			Revenue Recognized
Term Loans	Type	Footnote		Principal				Rate	YTD		Q3
4Web, Inc.	First Lien		06/03/23	$	17,000	$	16,976	12.8%	$	984	763
Acerus Pharmaceuticals, Inc.	First Lien		10/11/23	9,000		8,362		12.0%	1,089		363
Aimmune Therapeutics, Inc.	First Lien		01/23/25	1,262		1,264		8.50%	79		32
B&D Dental Corporation	First Lien	(3), (4)	12/10/18	8,368		8,337		14.0%	—		—
B&D Dental Corporation	Equipment Loan		03/31/20	18		18		16.3%	4		1
BIOLASE, Inc.	First Lien	(5)	11/09/23	15,000		14,426		12.3%	1,561		568
CeloNova BioSciences, Inc.	First Lien		07/31/21	3,811		3,837		13.0%	462		138
Cheetah Medical, Inc.	First Lien	(6)	01/15/24	10,000		9,796		10.8%	972		312
DxTerity Diagnostics, Inc.	First Lien	(7)	04/06/20	9,949		10,164		13.3%	1,193		405
Epica International, Inc.	First Lien		07/23/23	12,200		12,235		10.5%	1,207		415
EyePoint Pharmaceuticals, Inc.	First Lien	(8)	03/27/23	—		—		12.0%	3,454		—
Harrow Health, Inc. (formerly Imprimis Pharmaceuticals)	First Lien	(9)	07/19/23	9,264		8,952		(8)	989		287
Keystone Dental, Inc.	First Lien		05/20/21	15,000		15,246		11.5%	1,629		541
Solsys Medical, LLC (formerly Soluble Systems)	First Lien	(10)	10/26/22	—		—		11.8%	1,512		399
Misonix, Inc.	First Lien	(10)	06/30/23	25,096		25,046		10.0%	24		24
Tenex Health, Inc.	First Lien		06/30/21	6,861		7,024		13.0%	885		289
Thermedx, LLC	First Lien	(11)	05/05/21	—		—		N/A	328		—
Thermedx, LLC Note	Sub Note	(11)	05/20/29	369		368		12.0%	15		11
Veru, Inc.	First Lien	(12)	03/05/25	10,000		7,807		N/A	1,371		686

		No of Shares	Exercise Price	GAAP Balance		Change in Fair Value
Common Stock	Footnote					YTD		Q3
Misonix, Inc.		96,810	N/A	$	1,946	$	1,787	$	1,787

28

		Number of	Exercise Price per	GAAP	Change in Fair Value
Warrants to Purchase Stock	Footnote	Shares	Share	Balance	YTD			Q3
4Web, Inc.		TBD	TBD	—	$	—		—
Acerus Pharmaceuticals, Inc.		6,693,107	0.11 CAD	343	179			176
B&D Dental Corporation		225	0.01	—	—			—
BIOLASE, Inc.	(5)	372,023	1.34	265	(174		)	(8	)
BIOLASE, Inc.	(5)	115,175	2.17	77	(52		)	(118	)
CeloNova BioSciences, Inc.		TBD	0.01	—	—			—
Cheetah Medical, Inc.	(6)	1,578,948	0.38	—	—			—
DxTerity Diagnostics, Inc.		1,129,808	2.08	—	—			—
Epica International, Inc.		TBD	TBD	—	—			—
EyePointPharmaceuticals, Inc. (Tranche 1)		409,091	1.10	515	51			(54	)
EyePoint Pharmaceuticals, Inc. (Tranche 2)		77,721	1.93	84	8			(12	)
Harrow Health, Inc. (formerly Imprimis Pharmaceuticals, Inc.)		373,847	2.08	1,656	(1,065		)	(16	)
Tenex Health, Inc.		2,693,878	0.37	—	—			—

			Revenue Recognized
	Assets		YTD		Q3
Total Finance Receivables	$	175,048	$	21,243	$	6,198
Total Marketable Investments		1,946		—		—
Total Corporate Debt Securities		483		—		—
Fair Value of Warrant Assets		2,940		—		—
Total Assets/Revenues	$	180,417	$	21,243	$	6,198

(1)	Provision for credit losses of $609 recognized during the nine months ended September 30, 2019.
(2)	Investment considered impaired.

29

(3)	Investment on nonaccrual.
(4)	B&D is evaluating strategic alternatives for the business. The loan is currently in default.
(5)	Executed amendment May 7, 2019 to fund an additional $2,500. Warrant strike price reduced to $1.00 per November 2019 amendment.
(6)	Term loan repaid on October 25, 2019, which included $1,199 of exit fees and $196 of warrant proceeds.
(7)	Amended facility to allow DxTerity to pay in kind the interest payments due in January 2019 and April 2019, subject to DxTerity raising additional subordinated capital, which it accomplished.
(8)	Term loan repaid on February 13, 2019, which included $3,454 of interest, deferred origination fees, prepayment, and exit fees.
(9)	Executed amendment on May 24, 2019, which decreased the contract rate to 10.0 percent, subject to further reduction dependent up achieving certain leverage ratios, increased the LIBOR floor to 2.0 percent, and extended the maturity date to July 2023.
(10)	Executed amendment and commitment letter May 2, 2019 to allow Misonix to assume the loan upon the closing of the Solsys acquisition. Funded $2,500 on May 2, 2019, $2,500 on September 26, 2019, post Solsys raising $4,000 of equity capital, and $5,000 on September 27, 2019 at closing of the acquisition.
(11)	Synthetic royalty was paid off during the year, with $357 of the consideration in the form of a PIK note.
(12)	Executed amendment May 13, 2019 whereby the royalty rates applicable to FC2’s net sales were reduced by 50 percent for the next four payment periods to accommodate Veru’s growth working capital needs. The royalty rates return to the original levels in 2020 and subsequently increase in 2021. Total aggregate amount due by maturity was increased to 176.25 percent of the aggregate amount advanced.

Unless otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a company’s quarterly net sales and royalties. 

30

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019. In connection with our acquisition of Enteris, we have added or expanded several critical accounting policies and estimates during the nine months ended September 30, 2019, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018. Such newly added critical accounting policies include: business combinations; segments; goodwill and intangible assets; property, plant and equipment; inventory; and revenue recognition. Please refer to Part I. Financial Information, Item 1, Financial Statements, Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for a listing of these critical accounting policies and estimates.

Recent Accounting Pronouncements

Refer to Part I. Financial Information, Item 1. Financial Statements, Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for a listing of recent accounting pronouncements and their potential impact to our consolidated financial statements.

Comparison of the Three Months Ended September 30, 2019 and 2018 (in millions)

	Three Months Ended September 30,
	2019			2018			Change
Revenues	$	6.3		$	5.9		$	0.4
Provision for credit losses and impairment expenses		—			12.8			(12.8	)
Interest expense		0.1			0.1			—
Pharmaceutical manufacturing, research and development expense		0.3			—			0.3
Depreciation and amortization expense		0.4			—			0.4
General and administrative expense		2.7			1.2			1.5
Other income (expense), net		0.6			0.8			(0.2	)
Provision (benefit) for income taxes		(0.6	)		(1.7	)		1.1
Consolidated net income (loss)		4.2			(5.7	)		9.9

Revenues

We generated revenues of $6.3 million and $5.9 million for the three months ended September 30, 2019 and 2018, respectively, which consisted primarily of interest and fees earned on our finance receivables. The increase in revenue was primarily due to a $2.3 million increase in interest and fees earned on new and existing finance receivables. The increase in revenue was offset by $1.9 million decrease in interest and fees earned on finance receivables that were either paid off or paid down since the second quarter of 2018. In addition, our revenue for the three months ended September 30, 2019 includes $0.1 million of revenue generated by our Pharmaceutical Development segment.

Provision for Credit Losses and Impairment Expense

We did not recognize any credit loss provision or impairment expense during the three months ended September 30, 2019.

During the three months ended September 30, 2018, we recognized impairment expense of $2.5 million and $5.3 million related to the Hooper first lien and ABT second lien, respectively. Of the $5.3 million impairment expense related to ABT, $2.0 million reflects an accrual of estimated exit costs expected to be paid upon completion of the sale process. We also recognized a credit loss allowance of $5.0 million in order to reflect the ABT first lien at its estimated fair value of $5.8 million as of September 30, 2018.

Interest Expense

                Interest expense consists of unused line of credit and maintenance fees, as well as amortization of debt issuance costs on our revolving line of credit. Interest expense for both the three months ended September 30, 2019 and September 30, 2018 was $0.1 million.

31

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense totaling $0.3 million was incurred by our Pharmaceutical Development segment, which was acquired during the three months ended September 30, 2019.

Depreciation and Amortization

Depreciation and amortization increased by $0.4 million due to the increase in fixed and intangible assets that were obtained in the acquisition of Enteris, which was acquired during the three months ended September 30, 2019.

General and Administrative

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expenses increased to $2.7 million for the three months ended September 30, 2019 from $1.2 million for the three months ended September 30, 2018, which was due to a $0.4 million increase in the performance-based bonus accrual, a $0.5 million increase in legal and accounting professional fees incurred primarily in connection with our acquisition of Enteris, and a $0.3 million increase related to our Pharmaceutical Development segment.

Other Income (Expense), Net

Other income for the three months ended September 30, 2019 reflected a net fair market value loss of $1.2 million on our warrant derivatives and a net fair market value gain of $1.8 million on our Misonix common stock. The $1.8 million gain resulted from the exchange of our Solsys equity interests, which were obtained upon exercising our Solsys warrants and preemptive right to protect against dilution of our Solsys warrants, into Misonix shares pursuant to the terms of the acquisition agreement.

Other income (expense), net for the three months ended September 30, 2018 reflected a net fair market value gain of $0.8 million on our warrant derivatives and a net fair market value gain of $0.1 million on our equity securities. During the three months ended September 30, 2018, an aggregate $0.1 million loss was realized from the write off of our Hooper warrants and equity securities.

Income Tax Expense

During the three months ended September 30, 2019 and 2018, we recognized a deferred income tax benefit of $0.6 million and income tax expense of $1.7 million, respectively. The deferred income tax benefit recognized during the three months ended September 30, 2019 was primarily the result of a $1.2 million adjustment to our deferred tax asset and other discrete items that resulted from the acquisition of Enteris.

32

Comparison of the Nine Months Ended September 30, 2019 and 2018 (in millions)

	Nine Months Ended September 30,
	2019		2018		Change
Revenues	$	21.4	$	19.5	$	1.9
Provision for credit losses and impairment expenses		0.6		14.0		(13.4	)
Interest expense		0.3		0.1		0.2
Pharmaceutical manufacturing, research and development expense		0.3		—		0.3
Depreciation and amortization expense		0.4		—		0.4
General and administrative expense		5.3		3.6		1.7
Other income (expense), net		1.6		0.2		1.4
Provision for income taxes		1.2		0.4		0.8
Consolidated net income		15.0		1.6		13.4

We generated revenues of $21.4 million and $19.5 million for the nine months ended September 30, 2019 and 2018, respectively, which consisted primarily of interest and fees earned on our finance receivables. The increase in revenue is primarily due to a $6.1 million increase in interest and fees earned on new and existing finance receivables and $2.1 million in exit and prepayment fees from a loan that was paid off in the first quarter of 2019. The increase in revenue was offset by a $6.4 million decrease in interest and fees earned on finance receivables that were paid off or paid down since the third quarter of 2018, including $4.0 million of prepayment and exit fees earned on two finance receivables that were paid off in 2018. In addition, our revenue for the nine months ended September 30, 2019 includes $0.1 million of revenue generated by our pharmaceutical development segment.

Provision for Credit Losses and Impairment Expense

During the nine months ended September 30, 2019, we recognized credit loss provision expense of $0.6 million related to the Besivance^® royalty, which was due to increases in sales chargebacks and various rebates (gross sales to net sales deductions) and lower sales volumes. Please refer to Item 1. Financial Statements, Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information regarding the provision for credit loss recognized during the nine months ended September 30, 2019.

We recognized an allowance for credit loss on a royalty purchase of $1.2 million during the nine months ended September 30, 2018 related to the Cambia^® royalty, which was due to reduced sales expectations.

During the nine months ended September 30, 2018, we recognized impairment expense of $2.5 million and $5.3 million related to the Hooper first lien and ABT second lien, respectively. Of the $5.3 million impairment expense related to ABT, $2.0 million reflects an accrual of estimated exit costs expected to be paid upon completion of the sale process. In addition to recognizing an allowance for credit losses of $5.0 million in order to reflect the ABT first lien at its estimated fair value of $5.8 million as of September 30, 2018, we also recognized an allowance for credit losses of $1.2 million on a royalty purchase.

Interest Expense

                Interest expense consists of unused line of credit and maintenance fees, as well as amortization of debt issuance costs on our revolving line of credit. Interest expense increased to $0.3 million for the nine months ended September 30, 2019 from $0.1 million for the nine months ended September 30, 2018. We entered into the credit facility agreement in June 2018, which accounts for the slight increase in interest expense during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. 

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense totaling $0.3 million was incurred by our pharmaceutical development segment, which was acquired during the nine months ended September 30, 2019.

33

Depreciation and Amortization

Depreciation and amortization increased by $0.4 million due to the increase in fixed and intangible assets that were obtained in the acquisition of Enteris, which was acquired during the nine months ended September 30, 2019.

General and Administrative

General and administrative expenses consist primarily of compensation, stock-based compensation and related costs for management, staff, Board of Directors, legal and audit expenses, and corporate governance. General and administrative expenses increased to $5.3 million for the nine months ended September 30, 2019 from $3.6 million for the nine months ended September 30, 2018, which was due to a $0.2 million increase in the performance-based bonus accrual, a $0.7 million increase in legal and accounting professional fees incurred primarily in connection with our acquisition of Enteris, and a $0.3 million increase related to our Pharmaceutical Development segment.

Other Income (Expense), Net

 Other income, net for the nine months ended September 30, 2019 reflected a $0.1 million net fair market value loss on our warrant derivatives and a $1.8 million net fair market value gain on our Misonix common stock. The $1.8 million gain resulted from the exchange of our Solsys equity interests, which were obtained upon exercising our Solsys warrants and preemptive right to protect against dilution of our Solsys warrants, into Misonix shares pursuant to the terms of the acquisition agreement.

 Other income (expense), net for the nine months ended September 30, 2018, reflected a net fair market value gain of $0.9 million on our warrant derivatives and a net fair market value loss of $0.6 million on our equity securities. During the nine months ended September 30, 2018, an aggregate $0.1 million loss was realized on the write off of our Hooper warrants and equity securities.

Income Tax Provision

During the nine months ended September 30, 2019 and 2018, we recognized income tax expense of $1.2 million and $0.4 million, respectively. The increase in income tax expense for the nine month ended September 30, 2019 was primarily the result of an increase in pretax income, which was offset by a $1.2 million adjustment to our deferred tax asset and other discrete items that resulted from the acquisition of Enteris.

34

Liquidity and Capital Resources

As of September 30, 2019, we had $4.5 million in cash and cash equivalents, compared to $20.2 million in cash and cash equivalents as of December 31, 2018. The primary driver of the net decrease in our cash balance was $36.4 million, net of origination costs and fees, of new and add-on investment funding and $21.5 million in cash paid for the acquisition of Enteris. The net decrease was offset by $48.0 million of interest, fees, and principal payments generated by our finance receivables, which included $27.7 million received from the payoff of two terms loans. On October 25, 2019, we received $11.4 million in cash from the repayment of the Cheetah credit facility, and on November 13, 2019, we advanced $5.0 million in cash to Eton pursuant to that credit agreement.

Our ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivable business model of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well as the success of our Pharmaceutical Development segment. We generate income primarily from four sources:

1. Primarily owning or financing through debt investments, royalties generated by the sales of life science products and related intellectual property;

2. Receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector;

3. Pharmaceutical development, manufacturing, and licensing activities utilizing the Peptelligence^® platform; and

4. To a lesser extent, realizing capital appreciation from equity-related investments in the life science sector.

As of September 30, 2019, our finance receivables portfolio contains $175.0 million of finance receivables, $1.9 million of marketable investments and $0.5 million of corporate debt securities. We expect these assets to generate positive cash flows in 2019. We continue to evaluate multiple attractive opportunities that, if consummated, we believe would similarly generate additional income. Since the timing of any investment is difficult to predict, we may not be able to generate positive cash flow above what our existing assets will produce in 2019.

During the nine months ended September 30, 2019, our Pharmaceutical Development segment did not have a material impact on our cash flow. We expect the Pharmaceutical Development segment to generate positive cash flow above its expenses from proceeds received under its license agreements and customer relationships; however, the timing of the receipt of payments under the license agreements is uncertain and dependent upon the success of our technology licensees’ pharmaceutical development candidates.

We expect in the aggregate that the Company will generate positive cash flow in excess of our expenses.

We entered into a $20 million revolving credit facility in June 2018. We intend to borrow funds to make investments to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities. The total undrawn amount of the credit facility as of September 30, 2019 was $20 million, and based on available future investment opportunities, we may seek to increase our revolving credit facility.

Off Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage partner companies’ requests for funding and take the form of loan commitments and lines of credit.

The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the partner company defaults, and the value of any existing collateral becomes worthless. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Please refer to Item 1. Financial Statements, Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

35

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

During the nine months ended September 30, 2019, our cash and cash equivalents were deposited in accounts at well capitalized financial institutions. The fair value of our cash and cash equivalents at September 30, 2019 approximated its carrying value.

Investment and Interest Rate Risk

We are subject to financial market risks, including changes in interest rates. As we seek to provide capital to a broad range of life science companies, institutions and investors, our net investment income is dependent, in part, upon the difference between the rate at which we earn on our cash and cash equivalents and the rate at which we lend those funds to third parties. As a result, we would be subject to risks relating to changes in market interest rates. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations by providing capital at variable interest rates.  We constantly monitor our portfolio and position our portfolio to respond appropriately to a reduction in credit rating of any of our investments.

During 2018, we entered into a revolving credit facility. As we borrow funds to make additional investments, our income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates when we have debt outstanding, our cost of funds would increase, which could reduce our income, especially to the extent we continue to hold fixed rate investments. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. Adverse developments resulting from changes in interest rates or hedging transactions could have a materially adverse effect on our business, financial condition and results of operations.

Inflation

We do not believe that inflation has had a significant impact on our revenues or operations.

ITEM 4.      CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this report, our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

Other than accounting integration of the Enteris acquisition, there have been no changes during the nine months ended September 30, 2019 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

36

PART II. OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

We are involved in, or have been involved in, arbitrations or various other legal proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these claims and other proceedings. The ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact on our results of operations, balance sheets and cash flows due to defense costs, and divert management resources. Currently, we are not involved in any arbitration and/or other legal proceeding that we expect to have a material effect on our business, financial condition, results of operations and cash flows.

ITEM 1A.    RISK FACTORS

Information regarding the Company’s risk factors appears in “Part I. – Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 28, 2019. Below are material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as a result of the Enteris acquisition.

The merger of Enteris might not be successful.

In August 2019, Enteris BioPharma Inc., a biotechnology company offering innovative formulation solutions utilizing its proprietary oral drug delivery technology, merged with a wholly-owned subsidiary of the Company, with Enteris continuing as the surviving entity and our wholly-owned subsidiary.  We acquired Enteris with the intent of expanding its Peptelligence™ platform which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation. Enteris currently generates revenue from near-term fee-for-service feasibility studies, and by entering into license agreements with third parties permitting them to utilize the Enteris technology in their drug development efforts. Prior to the merger, Enteris entered into a non-exclusive commercial license agreement with Cara Therapeutics, for oral formulation rights to Enteris’ Peptelligence^® technology to develop and commercialize Oral KORSUVA in any indication worldwide, excluding South Korea and Japan. Cara is obligated to pay Enteris certain development, regulatory and tiered commercial milestone payments, as well as low single-digit royalties based on net sales in the licensed territory. Until the second anniversary of the entry into the license agreement, Cara has the right, but not the obligation, to terminate its obligation to pay any royalties under the license agreement in exchange for a lump sum payment.  While Enteris is actively pursuing new revenue and licensing opportunities, there can be no assurance that Enteris will be able to enter into any such agreements.  Even if Enteris is able to enter into such agreements, there can be no assurance as to the terms and conditions of any such agreement.  As a result, the merger of Enteris may not be successful or effectively implemented.  If Enteris is unsuccessful, it could have a material adverse effect on our financial condition, results of operations and cash flow.

Risks Related to Product Development and Commercialization

Enteris’ product candidates are in early stages of development and Enteris and any licensees may not be successful in efforts to develop products for many years, if ever.

Enteris’ success depends on its and any licensees’ ability to commercialize their products that will generate revenues sufficient to sustain and grow its operations. Except with respect to the Phase 3 calcitonin program licensed to RPharm, the recently announced license agreement entered into with Cara who currently has three Phase 2 programs in the clinic, as well as the internal development of our Phase 2 asset, Ovarest, and our Phase 1 asset, Tobrate, our product candidates are in early stages of development and have not been out-licensed. The successful development of these products will take several more years.  Similarly, neither Enteris nor any potential licensee may ever develop and commercialize any other peptide or small molecule product that helps us achieve profitability and growth.  Even if Enteris and/or a licensee is successful in developing such a product, it is likely that development of any product will take several years.  Enteris’ ability to achieve growth is dependent on a number of factors, including Enteris and its licensees’ ability to complete development efforts and obtain regulatory approval for additional product candidates.

37

Enteris’ partners may not be successful in their efforts to gain regulatory approval for any of their product candidates and, if approved, the approval may not be on a timely basis.

Even if any Enteris licensees are successful in their development efforts, they may not be able to obtain the necessary regulatory approval for their product candidates. The FDA must approve the commercial manufacture and sale of pharmaceutical products in the United States. Similar regulatory approvals are required for the sale of pharmaceutical products outside of the United States. None of Enteris’ partners’ products have been approved for sale in the United States, and may never receive the approvals necessary for commercialization. Additional human testing must be conducted on our partners’ product candidates before they can be approved for commercial sale and such testing requires the investment of significant resources. Any delay in receiving, or failure to receive, these approvals would adversely affect Enteris ability to generate product revenues.

Current and future legislation may increase the difficulty and cost for Enteris’ partners to obtain marketing approval of and the commercialization of their product candidates. This could affect the timing as well as the amount of royalty income Enteris may earn as a result.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for Enteris’ partners product candidates, restrict or regulate post-approval activities and affect our partners ability to profitably sell their product candidates. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our partners’ product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject our partners to more stringent product labeling and post-marketing testing and other requirements.

In the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, Enteris expects that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that our partners receive for their product candidates and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 or, collectively, the Health Care Reform Law, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Health Care Reform Law revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the law imposed a significant annual fee on companies that manufacture or import branded prescription drug products.

 The Health Care Reform Law remains subject to legislative efforts to repeal, modify or delay the implementation of the law. However, if the Health Care Reform Law is repealed or modified, or if implementation of certain aspects of the Health Care Reform Law are delayed, such repeal, modification or delay may, materially adversely impact our business, strategies, prospects, operating results or financial condition. Enteris is unable to predict the full impact of any repeal, modification or delay in the implementation of the Health Care Reform Law on its business at this time. Due to the substantial regulatory changes that will need to be implemented by CMS and others, and the numerous processes required to implement these reforms, Enteris cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on our business.

38

In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce or eliminate Enteris’ profitability.

Enteris technology or products could give rise to product liability claims.

While Enteris does not have a commercial product, Enteris’ business exposes us to the risk of product liability claims from human testing and the manufacturing of pharmaceutical tablets currently used in clinical trials. The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims even if Enteris’ or Enteris’ partner’s products are not actually at fault for causing an injury. Furthermore, Enteris products may cause, or may appear to cause, adverse side effects or potentially dangerous drug interactions that we may not learn about or understand fully until the drug is actually manufactured and sold. Product liability claims can be expensive to defend and may result in large judgments against us. Even if a product liability claim is not successful, the adverse publicity, time and expense involved in defending such a claim may interfere with our business. We may not have sufficient resources to defend against or satisfy these claims. While we currently maintain product liability insurance coverage, the amount of coverage may not be sufficient to protect us against losses or may be unavailable in the future on acceptable terms, if at all.

Risks Related to Government Regulation

Because Enteris is a biopharmaceutical company, its operations are subject to extensive government regulation.

Enteris research, development and production activities, as well as those of its collaborators and licensees, are subject to significant regulation by federal, state, local and foreign governmental authorities. The regulatory approval process for a pharmaceutical product requires substantial resources and may take many years. Enteris’ partners’ inability to obtain approvals or delays in obtaining approvals would adversely affect Enteris’ ability to manufacture products, and to receive revenue from milestone payments, product sales or royalties.

The FDA and other regulatory agencies may inspect the Enteris production facility at any time to ensure compliance with cGMP guidelines. These guidelines require that Enteris conducts its production operation in strict compliance with established rules for manufacturing and quality controls. Any of these agencies can suspend production operations and product sales if they find significant or repeated deviations from these guidelines. A suspension would likely cause Enteris to incur additional costs or delays in product development and manufacturing. In addition, Enteris is subject to the U.S. Foreign Corrupt Practices Act, which prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Enteris’ present and future business is, and will continue to be, subject to various other laws, rules and/or regulations applicable to us as a result of our domestic and international business.

Risks Related to Operations

Enteris’ success depends upon its ability to protect its intellectual property rights.

Enteris has filed applications for U.S. patents relating to proprietary peptide manufacturing technology and oral formulations that Enteris has invented in the course of its research. Enteris most important U.S. manufacturing and delivery patents expire from 2021 to 2036 and Enteris’ has applications pending that could extend that protection. To date, twenty-five U.S. patents have issued and other applications are pending. Enteris has also made patent application filings in selected foreign countries and ninety-two foreign patents have issued with other applications pending. Enteris faces the risk that any of its pending applications will not be issued as patents. In addition, Enteris’ patents may be found to be invalid or unenforceable. Enteris’ business also is subject to the risk that its issued patents will not provide Enteris with significant competitive advantages if, for example, a competitor were to independently develop or obtain similar or superior technologies. To the extent Enteris is unable to protect its patents and patent applications, our investment in those technologies may not yield the benefits that we expect.

39

Enteris may be unable to retain key employees or recruit additional qualified personnel.

Because of the specialized scientific nature of the business, Enteris is highly dependent upon qualified scientific, technical, production and managerial personnel. There is intense competition for qualified personnel in Enteris’ line of business. There can be no guarantee that existing compensation will serve to prevent Enteris’ employees, including its key employees from resigning.  Enteris may not be able to attract and retain the qualified personnel necessary to maintain and develop its business. The loss of the services of existing personnel, as well as the failure to recruit additional key personnel in a timely manner, could harm the Enteris programs and its business.

Insurance coverage is increasingly more costly and difficult to obtain or maintain.

While Enteris currently has insurance for its business, property and its products, insurance is increasingly more costly and narrower in scope, and Enteris may be required to assume more risk in the future.  If Enteris is the subject of claims or suffers a loss or damage in excess of its insurance coverage, Enteris will be required to share that risk in excess of its insurance limits.  If Enteris is the subject of claims or suffers a loss or damage that is outside of its insurance coverage, Enteris may incur significant uninsured costs associated with loss or damage that could have an adverse effect on its operations and financial position.  Furthermore, any claims made on any Enteris insurance policies may impact its ability to obtain or maintain insurance coverage at reasonable costs or at all.

Enteris may not be able to renew its existing insurance on terms that are acceptable to Enteris, if at all.  If Enteris is unable to maintain adequate insurance coverage this would have a material adverse effect on its ability to sustain operations. 

40

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 21, 2018, the Board authorized a share repurchase program under which the Company was authorized to repurchase up to $3.5 million of the Company’s outstanding shares of common stock, or approximately 312,491 common shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act. The December 21, 2018 share repurchase program expired on May 31, 2019. On September 6, 2019, the Board authorized another share repurchase program of up to $2.1 million and will expire on February 29, 2020.

As of September 30, 2019, the Company repurchased 223,466 shares of its outstanding common stock. Of the total 223,466 shares, 143,900 were repurchased under the share repurchase program at a total cost of $1.4 million, or $9.61 per share. The share repurchase program expires on February 29, 2020.

The table below summarizes information about our purchases of common stock during the quarter ended September 30, 2019:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares That May Yet Be Purchased Under the Plan
Balance as of June 30, 2019		—	$	—		—		169,491
July 1, 2019 through July 31, 2019		—		—		—		169,491
August 1, 2019 through August 31, 2019		—		—		—		169,491
September 1, 2019 through September 30, 2019		900		12.75		900		168,591
		900	$	12.75		900

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.      MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5.      OTHER INFORMATION.

None. 

41

ITEM 6.       EXHIBITS

				Filing	Filed
Number	Exhibit Description	Form	Exhibit	Date	Herewith
31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.01	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*				X
32.02	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*				X
10.1	Non-Exclusive License Agreement between Enteris BioPharma, Inc. and Cara Therapeutics, Inc. dated as of August 20, 2019.#				X
101.INS+	XBRL Instance				X
101.SCH+	XBRL Taxonomy Extension Schema				X
101.CAL+	XBRL Taxonomy Extension Calculation				X
101.DEF+	XBRL Taxonomy Extension Definition				X
101.LAB+	XBRL Taxonomy Extension Labels				X
101.PRE+	XBRL Taxonomy Extension Presentation				X

# Portions of this exhibit (indicated by asterisks) have been omitted because the Registrant has determined they are not material and would likely cause competitive harm to the Registrant if publicly disclosed, and certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the Securities and Exchange Commission.

* These certifications accompany this Quarterly Report on Form 10-Q. They are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of SWK Holdings Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

+ XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 

42

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 2019.

SWK Holdings Corporation
By:	/s/ Winston L. Black
	Winston L. Black
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Charles M. Jacobson
	Charles M. Jacobson
	Chief Financial Officer
	(Principal Financial Officer)

43

EX-10.1

EXHIBIT 10.1

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

Execution Version

Non-Exclusive License Agreement

between

Enteris Biopharma, Inc.

and

CARA THERAPEUTICS, INC.

Dated as of August 20, 2019

Table of Contents

		Page
ARTICLE 1 DEFINITIONS		4
ARTICLE 2 LICENSE GRANT		13
2.1	Grant of License to Cara	13
2.2	Right to Sublicense	14
2.3	Rights in Bankruptcy	14
2.4	Disclosure of Technology	14
2.5	Retained Rights	14
2.6	Use of Licensed Technology	14
2.7	Negative Covenant	14
ARTICLE 3 DEVELOPMENT, REGULATORY AND COMMERCIALIZATION		15
3.1	Manufacture by Enteris	15
3.2	Technology Transfer by Enteris	15
3.3	Cara’s Rights and Obligations	16
3.4	Regulatory Responsibility	17
3.5	Recalls	17
3.6	Safety Information	17
3.7	Reference Rights	18
ARTICLE 4 CONFIDENTIALITY, PUBLICITY, PUBLICATIONS		18
4.1	Confidentiality	18
4.2	Authorized Disclosure	19
4.3	Employees and Consultants	20
4.4	Publicity	20
4.5	Public Filings	20
4.6	Publications and Presentations	21
4.7	Permitted Publications	21
4.8	Use of Proprietary Materials	21
ARTICLE 5 INTELLECTUAL PROPERTY RIGHTS		22
5.1	Enteris Rights	22
5.2	Cara Rights	22
5.3	Notice; Inventorship	22
5.4	Third Party Infringement	23
5.5	Defense of Claims	24
5.6	Patent Term Extension	25
5.7	Patent Marking	25
ARTICLE 6 CONSIDERATION		25
6.1	Upfront Fee	25
6.2	Milestone Payments	26
6.3	[***]	26
6.4	Notice and Payment of Milestones	26

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

6.5	Payment of Royalties; Accounting and Records	27
6.6	Payment Dates and Reports	28
6.7	Records; Audit Rights	28
6.8	Overdue Payments	29
6.9	Payments; Withholding Tax	29
6.10	Foreign Currency Exchange	29
6.11	Cara Obligations	29
ARTICLE 7 REPRESENTATIONS AND WARRANTIES; COVENANTS; LIABILITY		30
7.1	Mutual	30
7.2	By Cara	30
7.3	By Enteris	31
7.4	Warranty Disclaimer	32
7.5	Indemnification; Insurance	32
ARTICLE 8 TERM AND TERMINATION		34
8.1	Term	34
8.2	Expiration of Term	34
8.3	Termination for Material Breach	34
8.4	Termination for Challenge	35
8.5	Without Cause Termination	35
8.6	Consequences of Termination	35
8.7	Survival	36
ARTICLE 9 ASSIGNMENT; SUCCESSORS AND ASSIGNS		36
ARTICLE 10 GOVERNING LAW		37
ARTICLE 11 DISPUTE RESOLUTION; ARBITRATION		37
11.1	Dispute Resolution	37
11.2	Arbitration of Unresolved Disputes	37
ARTICLE 12 MISCELLANEOUS		39
12.1	Amendment and Modification	39
12.2	Headings	39
12.3	Counterparts	39
12.4	Waiver	39
12.5	No Third Party Beneficiaries	40
12.6	Independent Relationship	40
12.7	Interpretation	40
12.8	Entire Agreement; Severability	41
12.9	Delay Due to Force Majeure	41
12.10	Further Assurances	41
12.11	Expenses	41
ARTICLE 13 NOTICE		42

Exhibits and Schedules 

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

NON-EXCLUSIVE LICENSE AGREEMENT

This NON-EXCLUSIVE License AGREEMENT (“Agreement”) is made August 20, 2019 (the “Effective Date”) by and between CARA THERAPEUTICS, INC., incorporated and registered in the State of Delaware and having offices at 4 Stamford Plaza, 107 Elm Street, 9^th Floor, Stamford, CT 06902, USA (hereinafter referred to as “Cara”), and Enteris Biopharma, Inc., incorporated and registered in the State of Delaware and having offices at 83 Fulton St., Boonton, NJ 07005, USA (hereinafter referred to as “Enteris”). Each of Enteris and Cara is sometimes referred to individually herein as a “Party” and collectively as the “Parties.”

RECITALS

A. Enteris owns or otherwise controls certain proprietary technology and patent rights (defined below as Licensed Technology) claiming or covering formulations for oral delivery of peptide active pharmaceutical ingredients with functional excipients to enhance permeability and/or solubility, including in any oral solid dosage forms, and the development and manufacture of drug products using such formulations;

B. Cara wishes to obtain a non-exclusive license under the Licensed Technology on the terms and conditions of this Agreement; and

C. Enteris is willing to grant to Cara the requested license rights and Cara is willing to accept such rights pursuant to the terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, it is hereby agreed by and between the Parties as follows:

Article 1
Definitions

In this Agreement the following words and phrases shall have the following meanings unless the context requires otherwise:

“AAA” shall have the meaning set forth in Article 11.

“Affiliate” means, with respect to a particular Party, any person, company, partnership or other entity, whether or not incorporated or in existence at the Effective Date, that directly or indirectly controls, is controlled by or is under common control with such Party to this Agreement. The term “control” for the purposes of this definition (with correlative meanings for the terms “controlled by” and “under common control with”) means that the applicable person, company, partnership, or other entity owns fifty percent (50%) or more (including ownership by trusts with substantially the same beneficial interests) of the voting and equity rights of the applicable Party, or otherwise has the legal power to direct or cause the direction of the general management and policies of such Party.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 4 -

“Agreement” shall have the meaning set forth in the Recitals.

“Applicable Laws” means any national, international, federal, state or local laws, treaties, statutes, ordinances, rules and regulations, including any rules, regulations, guidance, guidelines or requirements of any national, international, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, national securities exchanges or securities listing organizations, that are in effect from time to time during the Term and apply to a particular activity or obligation hereunder.

“Assist” means knowingly providing, directly or indirectly, a Third Party with (a) any analysis of the Licensed Patent Rights or any portion thereof; (b) prior art or analysis of any prior art to any of the Licensed Patent Rights; (c) any documents in a Party’s possession, custody, or control relating to the Licensed Patent Rights, in whole or in part, or to any prior art to any of the Licensed Patent Rights; or (d) financial or technical support, in each case in connection with a Challenge by such Third Party of the Licensed Patent Rights or any portion thereof.

“Bankruptcy Code” means, as applicable, the U.S. Bankruptcy Code, as amended from time to time, and the rules and regulations and guidelines promulgated thereunder, or the bankruptcy laws of any other Governmental Authority, as amended from time to time, and the rules and regulations and guidelines promulgated thereunder, or any applicable bankruptcy laws of any other country or competent Governmental Authority, as amended from time to time, and the rules and regulations and guidelines promulgated thereunder.

“Business Day” means any day, other than a Saturday or Sunday, on which banking institutions in New York, New York are open for business.

“Calendar Quarter” means the period beginning on the Effective Date and ending on the last day of the calendar quarter in which the Effective Date falls, and thereafter each successive period of three (3) consecutive calendar months beginning on January 1, April 1, July 1, or October 1 and ending, respectively on March 31, June 30, September 30 and December 31; provided, that, the final Calendar Quarter shall end on the last day of the Term.

“Calendar Year” means the period beginning on the Effective Date and ending on December 31 of the calendar year in which the Effective Date falls, and thereafter each successive period of twelve (12) months commencing on January 1 and ending on December 31; provided, that, the final Calendar Year shall end on the last day of the Term.

“Cara Indemnitees” shall have the meaning set forth in Section 7.5(b).

“Cara Indemnity Claims” shall have the meaning set forth in Section 7.5(b).

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 5 -

“Challenge” means to contest, or knowingly to Assist a Third Party in its contest, of the validity or enforceability of the Licensed Patent Rights, in whole or in part, in any court, arbitration proceeding or other legal, judicial, or administrative tribunal, including the United States Patent and Trademark Office and the United States International Trade Commission. For the avoidance of doubt, for the purposes of this definition, the term “contest” means: (a) filing an action under 28 U.S.C. §§ 2201-2202 seeking a declaration of invalidity or unenforceability of any Licensed Patent Rights; (b) citation to the United States Patent and Trademark Office pursuant to 35 U.S.C. § 301 of prior art patents or printed publications or statements of the patent owner concerning the scope of any of the Licensed Patent Rights; (c) filing a request under 35 U.S.C. § 302 for re-examination of any of the Licensed Patent Rights; (d) filing, or joining in, a petition under 35 U.S.C. § 311 to institute inter partes review of any Licensed Patent Rights or any portion thereof; (e) filing, or joining in, a petition under 35 U.S.C. § 321 to institute post-grant review of the Licensed Patent Rights or any portion thereof; (f) provoking or becoming a party to an interference with an application for any of the Licensed Patent Rights pursuant to 35 U.S.C. § 135; or (g) filing or commencing any re-examination, opposition, cancellation, nullity or similar proceedings against any of the Licensed Patent Rights in any country.

“Change of Scope” shall have the meaning set forth in Section 3.2(c).

“CMO” means the third party manufacturer that Cara selects for commercial Manufacturing.

“Commercialization” or “Commercialize” means any and all activities directed to the offering for sale and sale of a Product, from the initial launch, including (a) activities directed to marketing, promoting, detailing, distributing, Manufacturing, importing, selling and offering to sell that Product in the Territory (including pre-approval marketing activities); (b) conducting Phase IV clinical trials with respect to that Product; (c) interacting with Regulatory Authorities regarding any of the foregoing; and (d) seeking pricing approvals and reimbursement approvals (as applicable) for that Product in the Territory. When used as a verb, “to Commercialize” and “Commercializing” means to engage in Commercialization and “Commercialized” has a corresponding meaning.

“Commercially Reasonable Efforts” means, with respect to the applicable task or activity under this Agreement, the application of efforts and resources that are generally consistent with those that a comparable company in the pharmaceutical industry generally would devote to accomplish such task or activity relating to products that are at a similar stage of development and have similar commercial potential as Product, taking into account all applicable competition, market, scientific, technical, intellectual property, regulatory, and commercial factors (including potential and actual economic return for the product), all based on then-prevailing conditions.

“Completion of Analytical Procedures Transfer” means the date of the full and complete transfer of the analytical procedures by Enteris to the CMO designated by Cara as specified in and in accordance with Section 3.2(a), as summarized in Section I (Transfer of Analytical Procedures) of the Project Plan.

“Completion of Manufacturing Process Transfer” means the date of the full and complete transfer of the Manufacturing process by Enteris to the CMO designated by Cara as specified in and in accordance with Section 3.2(a), as summarized in Section II (Transfer of Manufacturing Process) of the Project Plan.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 6 -

“Confidential Information” means, for a particular Party, any and all confidential and proprietary information, including any Know-how, disclosed by such Party to the other in writing, orally or in any other form in connection with this Agreement, which may include samples, documents, drawings, specifications data, graphics, technical know-how, letters, electronically transmitted documents, e-mails, etc. Confidential Information of a Party includes the Proprietary Materials of such Party. In the case of Enteris, Confidential Information includes Licensed Know-how and Improvements. In the case of Cara, Confidential Information includes any information disclosed by Cara relating to any Drug and Product(s) produced with the support of the Licensed Technology. With respect to each Party, Confidential Information includes this Agreement and the terms of this Agreement.

“Control” or “Controlled” means, with respect to Know-how or Patent Rights, that the applicable Party, either directly or through any of its Affiliates, owns or has a license (or sublicense) to or under, and has the right to grant to the other Party access to and a license or sublicense under, such Know-how or Patent Rights as provided herein without the payment of additional consideration to, or violating the terms of any agreement or arrangement with any Third Party, and without violating any Applicable Laws. For clarity, no Party (or Affiliate of a Party, as applicable) shall be deemed to Control any Know-how or Patent Rights by virtue of the license grants to that Party from or by the other Party as set forth in this Agreement.

“Debarred Entity” shall have the meaning set forth in Section 7.1(e).

“Development” or “Develop” means, with respect to a Product, all non clinical and clinical drug development activities that are undertaken after the Effective Date, including (a) the preparation and filing of Regulatory Filings and all regulatory affairs related to the foregoing, (b) obtaining, maintaining or expanding Regulatory Approvals of a Product, or (c) developing the ability to manufacture clinical and commercial quantities of a Product. This includes: (i) preclinical testing, toxicology, and clinical trials; (ii) preparation, submission, review, and development of data or information for the purpose of submission to a Regulatory Authority to obtain, maintain or expand Regulatory Approvals of a Product; and (iii) Manufacturing Process Development associated with the supply of a Product for preclinical testing and clinical trials, and related quality assurance and technical support activities. When used as a verb, “Developing” means to engage in Development and “Developed” has a corresponding meaning. For clarity, “Development” shall not include any Commercialization activities.

“Dispute” shall have the meaning set forth in Section 11.1.

“Drug” means CR845 (difelikefalin), and any salt forms, esters, prodrugs, biologically active metabolites or biologically active structural analogs, solvates, hydrates and crystalline forms thereof.

“Effective Date” shall have the meaning set forth in the Recitals.

“EMA” means the European Medicines Agency or any successor agency or authority thereto.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 7 -

“End of Phase 2 Meeting” means the end of Phase 2 meeting with the FDA, as described in 21 C.F.R. § 312.47(b), intended to determine the safety of proceeding to Phase 3, to evaluate the Phase 3 plan and protocols, and to identify any additional information necessary to support a marketing application for the uses under investigation.

“Enteris DMF” means that certain [***] and the information contained therein.

“Enteris Indemnitees” shall have the meaning set forth in Section 7.5(a).

“Enteris Indemnity Claims” shall have the meaning set forth in Section 7.5(a).

“FDA” means the United States Food and Drug Administration, or any successor entity thereto having substantially the same functions.

“FDCA” means the United States Federal Food, Drug, and Cosmetic Act, enacted in 1938 as Public Law 75-717, as such may have been amended, and which is contained in Title 21 of the U.S. Code, Section 301 et seq., as amended, and the regulations promulgated thereunder from time to time.

“Field” means all fields and uses, including all prophylactic, therapeutic and diagnostic uses for all human diseases, conditions and indications.

“Force Majeure” means any occurrence beyond the reasonable control of a Party that (a) prevents or substantially interferes with the performance by such Party of any of its obligations hereunder and (b) occurs by reason of any act of God, flood, fire, explosion, earthquake, casualty or accident, or war, revolution, civil commotion, act of terrorism, blockage or embargo, or any injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or of any subdivision, authority or representative of any such government.

“Generic Competition” means and shall be deemed to exist in a particular country in the Territory with respect to a particular Product in a given Calendar Quarter if in such country during such Calendar Quarter one or more Generic Products (other than a Generic Product sold by Cara or its Affiliates or by a Sub-licensee under a license granted by Cara or its Affiliates) in the aggregate account (on a units sold basis) for more than [***] of the sum of (a) the aggregate unit sales of such Product sold by Cara or its Affiliates or Sub-licensees in such country, and (b) the aggregate unit sales of such Generic Products in such country, each in such Calendar Quarter, based on data provided by IQVIA (formerly, Quintiles IMS Holding, Inc.), or if such data is not available, such other reliable data source as reasonably agreed upon by Cara and Enteris. If no data is commercially available, then the Parties shall reasonably agree upon a commercially reasonable methodology for estimating the percentage unit-based market share of Generic Products in such country during the applicable time period.

“Generic Product” means, with respect to a particular Product and a particular country, any pharmaceutical product (other than the Product) that contains the same active ingredient(s) in the same or substantially the same formulation and in a comparable quality and quantity as such Product, and is approved under an Abbreviated New Drug Application (ANDA) or any foreign equivalent thereof.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 8 -

“Governmental Authority” means any multi-national, national, federal, state, local, municipal, provincial or other governmental, regulatory, administrative, judicial, public or statutory instrumentality, court or governmental tribunal, agency, commission, authority, body or entity, or any political subdivision thereof, having legal jurisdiction over the matter or party in question.

“Improvement” means any Invention that constitutes a specific enhancement or improvement to or modification of the proprietary Licensed Technology (including Peptelligence® Formulation Technology), whether or not patentable.

“IND” means (a) an Investigational New Drug Application as defined in the FDCA or any successor application or procedure required to initiate clinical testing of the Product in humans in the United States; (b) a counterpart of an Investigational New Drug Application that is required in any other country or region in the Territory before beginning clinical testing of the Product in humans in such country or region; and (c) all supplements and amendments to any of the foregoing.

“Indemnified Party” shall have the meaning set forth in Section 7.5(c).

“Indemnifying Party” shall have the meaning set forth in Section 7.5(c).

“Infringement” shall have the meaning set forth in Section 5.4(a)

“Infringement Notice” shall have the meaning set forth in Section 5.4(a).

“Invention” means any new or useful process, machine, method of manufacture, or composition of matter, whether or not patentable, or any idea, invention, discovery, improvement, enhancement, modification or derivative work, whether or not patentable or copyrightable, including in respect of, relating to or comprising a Product, that is conceived and/or first reduced to practice (actually or constructively), whether or not patentable, by or on behalf of Cara (including by an Affiliate, Sub-licensee or other Third Party) in connection with the Development, Manufacture and/or Commercialization of Products.

“Know-how” means any and all proprietary technical and other information, whether or not patentable, including ideas, concepts, know-how, inventions, discoveries, data, formulae, processes, trade secrets, specifications, procedures for experiments and tests and other protocols, results of experimentation and testing, manufacturing and purification techniques and protocols.

“Licensed Know-how” means any and all Know-how comprising, relating to or using the Peptelligence® Formulation Technology (including any formulations developed by Enteris using the Peptelligence® Formulation Technology, and any manufacturing processes of Enteris of drugs using such formulations), that is Controlled by Enteris, prior to or during the Term, including any Improvements, that is necessary or useful for the Development, Manufacture, use or sale of the Product. To the extent that Cara exercises its right to a Royalty Buyout, “Licensed Know-how” shall exclude Improvements to such Know-how that are made by Enteris after the date on which Enteris receives a payment from Cara in connection with such Royalty Buyout.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 9 -

“Licensed Patent Rights” means any and all Patent Rights that claim or cover any Licensed Know-how, including the Peptelligence® Formulation Technology (including any formulations developed by Enteris using the Peptelligence® Formulation Technology, and any manufacturing processes of Enteris for drugs using such formulations), that are Controlled by Enteris prior to or during the Term, and including any Improvements, that is necessary or useful for the Development, Manufacture, use or sale of the Product; provided, however, to the extent that Cara exercises its right to a Royalty Buyout, “Licensed Patent Rights” shall exclude Improvements claimed or covered in any such Patent Rights that are made by Enteris after the date on which Enteris receives a payment from Cara in connection with such Royalty Buyout.

“Licensed Technology” means the Licensed Know-how and the Licensed Patent Rights.

“Losses” shall have the meaning set forth in Section 7.5(a).

“MAA” means any application for Regulatory Approval submitted to the EMA pursuant to the centralized approval procedure to obtain European Commission approval for the marketing of the Product in the European Union, or any successor application or procedure required to sell the Product in the European Union.

“Manufacture” means, with respect to the Product, any activities related to the formulation, production, manufacture, processing, filling, finishing, packaging, labeling, release, shipping, holding, conduct of Manufacturing Process Development, stability testing, quality assurance, release testing and quality control of such Product or any intermediate thereof for Development or Commercialization, and regulatory activities related to any of the foregoing. When used as a verb, “Manufacturing” means to engage in Manufacture.

“Manufacturing Process Development” means the development, qualification, validation and scale-up of the process used to manufacture the Product and analytic development and product characterization with respect thereto.

“Manufacturing Services Agreement” means that certain Phase 2 Clinical Manufacturing Services Agreement dated July 1, 2015, by and between Enteris BioPharma, Inc., and Cara Therapeutics, Inc., as amended from time to time.

“NDA” means a New Drug Application, as defined in the FDCA and regulations promulgated thereunder, or any successor application or procedure required to sell the Product in the United States.

“Net Sales” means the gross amount billed or invoiced by Cara or any of its Affiliates or Sub-licensees (each, a “Seller”) to Third Parties (excluding sales of Products among Cara, its Affiliates and Sub-licensees for resale to Third Parties), throughout the Territory for sales or other dispositions or transfers for value of Products, less [***]. In addition, Net Sales are subject to the following:

[***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 10 -

In the case of pharmacy incentive programs, hospital performance incentive program chargebacks, disease management programs, similar programs or discounts on products, all discounts shall be allocated among products on the basis on which such discounts were actually granted or, if such basis cannot be determined, in proportion to the respective list prices of such products.

For purposes of this Agreement, “sale” shall mean any commercial transfer or other commercial distribution or disposition, but shall not include transfers or other distributions or dispositions of Products at no charge (or at cost) for academic research, preclinical, clinical, or regulatory purposes (including the use of Products in clinical trials) or in connection with patient assistance programs or other charitable purposes or to physicians or hospitals for promotional purposes (including free samples to a level and in an amount which is customary in the industry and/or which is reasonably proportional to the market for such Product).

Net Sales (including the deductions) shall be determined from the books and records of Cara, its Affiliates and its Sub-licensees, in all cases maintained in accordance with the relevant accounting standards, consistently applied. Such amounts shall be calculated using the same accounting principles used by Cara (or the applicable Affiliate or Sub-licensee) for other Cara (or its Affiliate or Sub-licensee) products for financial reporting purposes.

“One Year Royalty Buyout” shall have the meaning in Section 6.5(c)(i).

“Patent Rights” means issued patents and pending patent applications (which, for purposes of this Agreement, include certificates of invention, applications for certificates of invention and priority rights) in any country or region, including all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, all letters patent granted thereon, and all reissues, re-examinations and extensions thereof, and all foreign counterparts of any of the foregoing, and all the rights and interests in and to any of the foregoing.

“Peptelligence® Formulation Technology” means Enteris’ proprietary technology relating to the methods and processes used by Enteris concerning the formulation, development, testing, manufacturing and/or packaging of active pharmaceutical ingredients, including: (i) the development of formulations for oral delivery of peptide active pharmaceutical ingredients in an enteric coated capsule or tablet containing a proprietary dry blend formulation of functional excipients to enhance permeability and/or solubility, including in any oral solid dosage forms, and/or (ii) the manufacture of drugs using such formulations. Such proprietary technology is generally described in Exhibit C of this Agreement.

“Product” means any drug product containing Drug in a formulation using or covered by the Licensed Technology.

“Project Plan” means that certain project plan attached hereto as Exhibit C of this Agreement and incorporated herein, as such plan may be amended or modified by the Parties in writing from time to time.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 11 -

“Proprietary Materials” means any tangible chemical, biological or physical materials that are furnished by or on behalf of one Party to the other Party in connection with this Agreement, whether or not specifically designated as proprietary by the transferring Party. Proprietary Materials of Enteris shall include the Enteris DMF and all contents contained therein.

“Recipient Party” shall have the meaning set forth in Section 4.8.

“Recipients” shall have the meaning set forth in Section 4.1.

“Regulatory Approval” means (a) in the United States, approval by the FDA of an NDA or similar application for marketing approval, and satisfaction of all related applicable FDA registration and notification requirements, if any, or (b) in any other country in the Territory, approval by Regulatory Authorities (including pricing and reimbursement approvals) having jurisdiction over such country of a single application or set of applications comparable to an NDA and satisfaction of all related applicable regulatory and notification requirements required for the marketing and sale of pharmaceuticals in such country.

“Regulatory Authority” means any national, international, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity with authority over the distribution, importation, exportation, manufacture, production, use, storage, transport, clinical testing, pricing, sale or reimbursement of the Product in the Territory, including the FDA and the EMA.

“Regulatory Filing” means, collectively: (a) any IND, NDA, MAA, establishment license application, drug master file, application for designation as an “Orphan Product(s)” under the Orphan Drug Act, for “Fast Track” status under Section 506 of the FDCA (21 U.S.C. § 356), for “Breakthrough Therapy” status under Section 506 of the FDCA (21 U.S.C. §356), or for a Special Protocol Assessment under Section 505(b)(4)(B) and (C) of the FDCA (21 U.S.C. § 355(b)(4)(B)) and all other similar filings (including counterparts of any of the foregoing in any country or region in the Territory); (b) all supplements and amendments to any of the foregoing; and (c) all data and other information contained in, and correspondence relating to, any of the foregoing.

“Royalty Buyout” or “Royalty Buyouts” shall have the meaning set forth in Section 6.5(c)(ii).

“Royalty Term” shall have the meaning set forth in Section 6.5(a).

“Securities Act” shall have the meaning set forth in Section 6.5(c)(iii).

“Significant Development Event” means any of the following material Development events, a summary of which shall be included in any summary report: (a) any material interaction and/or written correspondence between Cara and any Regulatory Authority with respect to the Manufacture of a Product; (b) any material event with respect to any clinical trial involving the Manufacture of a Product; and (c) any material result obtained in the conduct of any clinical trial involving the Manufacture of a Product during the period covered by the Development report.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 12 -

“Stock Purchase Agreement” means that certain common stock purchase agreement, in the form set forth in Exhibit B of this Agreement, that is entered into by the Parties concurrently with entry into this Agreement; for clarity, the Stock Purchase Agreement is not incorporated into or made part of this Agreement.

“Sub-licensee” means any Third Party to which Cara grants (directly or indirectly) a sublicense in accordance with Section 2.2.

“Sublicense Agreement” means any agreement by and between Cara and a Sub-licensee, and any agreement between any of Cara’s Sub-licensees and a further Sub-licensee, and all additional downstream sublicense agreements thereafter, that are entered into in accordance with Section 2.2.

“Successful Completion” means the delivery of the meeting minutes from the FDA for the End of Phase 2 Meeting allowing for the continuation into Phase 3 clinical trials on Product.

“Term” shall have the meaning set forth in Section 8.1.

“Territory” means the United States (“U.S.”) and the rest of world excluding Japan and South Korea.

“Third Party” means any Party other than Cara and Enteris and their respective Affiliates.

“Transferring Party” shall have the meaning set forth in Section 4.8.

“Two Year Royalty Buyout” shall have the meaning in Section 6.5(c)(ii).

“VWAP” shall have the meaning set forth in Section 6.1.

Article 2
License Grant

2.1Grant of License to Cara. Subject to the terms of this Agreement, Enteris hereby grants to Cara a non-exclusive, royalty-bearing license, including the right to grant sublicenses through multiple tiers as provided in Section 2.2, under the Licensed Technology, to Develop, Manufacture, and Commercialize Products in the Territory for use in the Field.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 13 -

2.2Right to Sublicense. Cara shall have the right to grant sublicenses through multiple tiers under the license granted to it under Section 2.1 to any of Cara’s Affiliates and to any Third Parties (including the rights of Sub-licensees to grant further sublicenses) for the Development and Commercialization of Products in the Territory in the Field, including for Manufacture of Product by a CMO; provided that (i) Cara shall not be relieved of any of its obligations under this Agreement; (ii) Cara shall secure all appropriate covenants, obligations and rights from any such Sub-licensee, including licenses, assignment of intellectual property rights and confidentiality obligations, to ensure that such Sub-licensee is subject to, and complies with, all of Cara’s applicable covenants and obligations under this Agreement; (iii) Cara shall be responsible for the performance of its obligations under this Agreement and shall use Commercially Reasonable Efforts to enforce the obligations of each Sub-licensee under the relevant Sublicense Agreement, including the performance of activities required, the making of all payments due and the making of any reports under this Agreement with respect to sales of Product by such Sub-licensee, and such Sub-licensee’s compliance with provisions of Sections 2.1, 2.6, 5.1, 5.4, 5.5, 5.7 and Article 4 of this Agreement; (iv) Cara shall require such Sub-licensee to retain such books and records, and Cara agrees that Cara will audit the books and records of any Sub-licensee, at Enteris’ request and expense, in accordance with the provisions of Section 6.7; (v) Cara shall provide Enteris with a copy of any such Sublicense Agreement executed by Cara pursuant to this Section 2.2 within [***] after execution; provided, that, the financial terms and any other confidential terms of any such Sublicense Agreement may be redacted to the extent not relevant to the determination or enforcement of Enteris’ rights under this Agreement; and (vi) Cara shall provide written notice to Enteris of such Sub-licensee within [***] after execution, but not in order to seek approval. All obligations of Cara under this Section 2.2 shall apply mutatis mutandis to all Sub-licensees of Cara that further sublicense their rights and obligations under this Agreement to further Sub-licensees, and Cara shall require each of its Sub-licensees to include appropriate provisions in such further sublicense.

2.3Rights in Bankruptcy. All licenses and rights to licenses granted under or pursuant to this Agreement by Enteris to Cara are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code.

2.4Disclosure of Technology. Enteris shall provide periodic written notice and disclosure to Cara of any and all Licensed Technology that is necessary or useful for the Manufacture, use or sale of the Product that is or comes under the Control of Enteris on or after the Effective Date and during the Term of the Agreement, except in the event that Cara exercises its Royalty Buyout, Enteris shall only provide notice to Cara under this Section 2.4 of any Licensed Technology that comes under the Control of Enteris after the Effective Date and on or prior to the date on which Enteris receives a payment from Cara in connection with the Royalty Buyout.

2.5Retained Rights. Subject to the other terms of this Agreement, Enteris hereby retains the right to use and/or practice the Licensed Technology to develop, manufacture, or commercialize or have developed, manufactured, or commercialized any product (other than the Product) and for any and all uses either inside or outside of the Field and to otherwise exploit the Licensed Technology for any and all uses outside of the license grant.

2.6Use of Licensed Technology. Cara hereby agrees that (a) it shall not use or practice the Licensed Technology for any purpose other than exercising its rights and performing its obligations under this Agreement; and (b) except for the rights expressly set forth in this Agreement, Cara is not granted any rights, title or interest in or to such Licensed Technology.

2.7Negative Covenant. In order to preserve the economic value of the business deal in this Agreement for each Party, Enteris covenants that during the Term, it and its Affiliates shall not grant any third party generic manufacturer of pharmaceutical or drug products any license or other rights (such as a covenant not to sue) under the Licensed Technology to Develop, Manufacture, or Commercialize any drug products containing the Drug in the Territory for use in the Field; provided that, the foregoing covenant shall automatically terminate, and this Section 2.7 shall thereafter be of no force and effect, if none of Cara or its Affiliates or Sub-licensees have launched a commercial Product by [***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 14 -

Article 3
Development, Regulatory and Commercialization

3.1Manufacture by Enteris. Enteris shall continue to perform its obligations under the Manufacturing Services Agreement in accordance with the terms thereof, including manufacture and supply requirements for Drug products for ongoing and (if applicable) future Phase 1 and Phase 2 clinical trials, until termination of such agreement. For clarity, the first sentence of Section 2.5 and the first sentence of Section 4.1(b) of the Manufacturing Services Agreement are hereby terminated.

3.2Technology Transfer by Enteris.

(a)Enteris acknowledges that the transfer of all Licensed Technology existing as the Effective Date is critical to Cara’s ability to exercise its rights and receive its benefits under this Agreement. Enteris hereby covenants that it shall complete the transfer of all such Licensed Technology, subject, however, to the cooperation, resources and efforts of Cara’s CMO to fully and effectively receive such technology transfer, commencing on a date as reasonably specified by Cara, and Enteris shall use diligent, good faith efforts to complete such technology transfer, including achieving the Completion of Analytical Procedures Transfer and Completion of Manufacturing Processes Transfer, as soon as reasonably practicable thereafter. Cara shall cause its CMO to use diligent, good faith efforts to accept the technology transfer, and the Parties shall (and Cara shall cause its CMO to) work collaboratively and in good faith to conduct the full, accurate, and complete technology transfer under the Project Plan through the Completion of Analytical Procedures Transfer and Completion of Manufacturing Process Transfer.

(b)The Parties agree that the fee for the work as set forth under Section I of the Project Plan as of the Effective Date (Completion of Analytical Procedures Transfer) is [***]. Prior to commencement of the transfer of the manufacturing process, fees for all work contemplated under Section II of the Project Plan (Transfer of Manufacturing Process) shall be proposed by Enteris and agreed to by Cara, and such fees shall be commercially reasonable and typical for similar technology transfer work. In the event that Cara reasonably determines that additional technology transfer work by Enteris – beyond the tasks generally set forth in the then-current Project Plan – are needed to enable the CMO successfully to complete manufacture of amounts of Product as specified in and in accordance with the criteria in Section II (Transfer of Manufacturing Process) of the Project Plan to achieve Completion of Manufacturing Process Transfer, then the Parties shall discuss and agree reasonably and in good faith on such additional work required to be conducted by the Parties (and, if applicable, any CMO selected by Cara) to satisfy all the acceptance criteria in the Project Plan, and a timeline and budget for such work (with the Enteris fees for such additional Enteris work to be commercially reasonable and typical for similar technology transfer work), in each case in accordance with Section 3.2(c). Notwithstanding the foregoing, any additional work performed by Enteris in furtherance of the analytical procedures transfer under Section I of the initial Project Plan, but not set forth in Section I of the Project Plan as of the Effective Date, shall not be included in the [***] fee, and the fee for such additional work shall be commercially reasonable and typical for similar technology transfer work. All payments due under this Section 3.2 shall be paid upon Completion of the Analytical Procedures Transfer or Completion of the Manufacturing Process Transfer, as applicable.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 15 -

(c)Cara shall request additional services to the Project Plan in writing, detailing the proposed changes to the services (“Change of Scope”). Within [***] of Enteris’ receipt of such proposed Change of Scope, Enteris shall provide Cara with a cost and time estimate for performing the additional services as proposed, and the fees for such work, which costs and fees shall be commercially reasonable and typical for similar work. The Parties shall jointly review and discuss the proposed Change of Scope, costs, fees and time estimate reasonably and in good faith. Such additional services shall become part of the Project Plan upon execution by both Parties of the Change of Scope. Any disagreements with respect to the Change of Scope shall be subject to Section 11.1.

(d)For purposes of this Section 3.2, Cara shall ensure that any CMO of Cara is subject to confidentiality provisions comparable in scope to Article 4 with respect to the transfer by Enteris to Cara and its CMO of information and Know-how under Section 3.2. Enteris does not represent or warrant that the use of, or results from, the analytical procedures or manufacturing processes will satisfy the requirements of any Regulatory Authority at the time of submissions of any Regulatory Filings to any such Regulatory Authority.

3.3Cara’s Rights and Obligations.

(a)Except as provided in Section 3.1, Cara shall have the sole right and responsibility, at its sole cost and expense, and in its sole discretion, for the Development, Manufacture and Commercialization of Products for use in the Field and in the Territory.

(b)Cara shall have the sole right and responsibility, at its sole cost and expense, and in its sole discretion, during the Term to Develop, seek Regulatory Approval, and (if Regulatory Approval is achieved) Commercialize Products in the Field in the Territory and shall, in its sole discretion, commit such resources (including employees, consultants, contractors, facilities, funding, equipment and materials) as it determines are necessary or appropriate to conduct such Development and Commercialization activities.

(c)Cara shall provide Enteris with written reports describing in reasonable summary its Development activities and Commercialization activities with respect to the Products in the Territory and the results of such activities on an annual basis, with the first report being due [***] after the Effective Date, which reports shall include a reasonable summary of: (a) all Development and Commercialization activities conducted with respect to the Product (including the status of any clinical trials) and any launch plans (including expected date of first commercial sales of Product); (b) the Regulatory Filings with respect to such Products that Cara or any of its Affiliates have filed, sought or obtained in the prior [***] period or reasonably expect to make, seek or attempt to obtain in the following [***] period in the Territory, and (c) any Significant Development Events applicable to the Product. The reports shall also include a summary of all material questions asked by any Regulatory Authority to Cara regarding the Licensed Technology and of Cara’s responses thereto. For purposes of clarity, the obligation to provide summary reports hereunder does not affect or supersede any such reporting or disclosure obligations of Cara as set forth in the Manufacturing Services Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 16 -

3.4Regulatory Responsibility. Cara (and including its Affiliates and Sub-licensees) shall have the sole right and responsibility, at its and their sole discretion for (a) preparing, filing and maintaining all Regulatory Filings for Products in its own name in the Territory; provided that Enteris shall prepare, file and solely and exclusively own the Enteris DMF and all contents therein, and Cara shall have no ownership interest whatsoever in the Enteris DMF or the contents therein, and (b) reporting to Regulatory Authorities all adverse events and serious adverse events occurring in any clinical trials conducted by Cara related to any Products, to the extent required by Applicable Laws. Enteris agrees to provide Cara with all information contained in the Enteris DMF, and in any analogous regulatory filing or documents in any other jurisdiction, to facilitate Cara’s Regulatory Filings in jurisdictions where the Enteris DMF is not recognized, subject to Section 4.8, it being understood that such information is deemed Proprietary Materials of Enteris.

3.5Recalls. If any Regulatory Authority issues or requests a recall or takes similar action in connection with any Product in the Territory, or if Cara (or and its Affiliate or Sub-Licensee) reasonably believes that an event, incident or circumstance has occurred that may result in the need for a recall, market withdrawal or other corrective action regarding the Product, Cara shall promptly advise Enteris thereof by telephone or facsimile. Following such notification, Cara (or and its Affiliate or Sub-Licensee) shall decide and have control of whether to conduct a recall or market withdrawal (except in the event of a recall or market withdrawal mandated by a Regulatory Authority, in which case it shall be required) or to take other corrective action in any country and the manner in which any such recall, market withdrawal or corrective action shall be conducted; provided, that, Cara shall keep Enteris regularly informed regarding any such recall, market withdrawal or corrective action. All expenses incurred by Cara in connection with any such recall, market withdrawal or corrective action (including, without limitation, expenses for notification, destruction and return of the affected Product and any refund to customers of amounts paid for such Product) shall be the sole responsibility of Cara.

3.6Safety Information. Each Party shall disclose to other Party any and all information of which that Party (or its Affiliate) becomes aware relating to any safety issues for formulations using or based on the Licensed Technology, which reasonably may impact the safety of Product, such disclosure to be made promptly after the Party becomes aware thereof.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 17 -

3.7Reference Rights. Cara (and its Affiliates and Sub-Licensees) shall have (i) the right of reference to the Enteris DMF and the information therein, and (ii) the right to reference the information contained in the Enteris DMF in all of Cara’s (and its Affiliates and Sub-Licensees) Regulatory Filings in jurisdictions where the Enteris DMF is not recognized, in each case solely for the purpose of exercising, using and practicing the licenses and other rights granted to Cara pursuant to this Agreement, provided that Cara shall bear any expenses (including expenses of Enteris) in respect of exercising any such right of reference.

Article 4
Confidentiality, Publicity, Publications

4.1Confidentiality. Each Party agrees that, during the Term and for a period of [***] thereafter, it and its Affiliates shall keep confidential and shall not publish or otherwise disclose to any Third Party and shall not use for any purpose other than to exercise its rights or perform its obligations under this Agreement or the Project Plan any Confidential Information furnished to it or its Affiliate by the other Party or its Affiliate pursuant to this Agreement or the Project Plan, except to the extent expressly authorized by this Agreement or the Project Plan, or as otherwise agreed to in writing by the Parties. Each Party shall further require its Affiliates, and its and their respective directors, officers, employees, agents, consultants, sublicensees, contractors, partners, acquirors, assignees, and distributors (collectively, “Recipients”) who receive the other Party’s Confidential Information to agree, in writing, to be bound by duties and obligations of confidentiality and non-use no less stringent than those contained in this Section 4.1. The foregoing confidentiality and non-use provisions will apply over any preceding obligations of confidentiality between Enteris and Cara, including those set forth in the Manufacturing Services Agreement. The foregoing confidentiality and non-use obligations do not apply to any particular portion of the disclosing Party’s Confidential Information that the receiving Party can demonstrate by competent written proof:

(a)was already known to or otherwise in the possession of, the receiving Party, other than under an obligation of confidentiality, prior to the time of disclosure by the disclosing Party or its Affiliate, as evidenced by contemporaneous writing;

(b)was part of the public domain at the time of its disclosure to the receiving Party or any of its Recipients;

(c)became part of the public domain after its disclosure and other than through any act or omission of the receiving Party or any of its Recipients in breach of this Agreement;

(d)was disclosed to the receiving Party on a non-confidential basis by a Third Party who, to the receiving Party’s knowledge after due inquiry, had a legal right to make such disclosure; or

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 18 -

(e)was independently discovered or developed by the receiving Party or its Affiliate without aid, application, reference to or use of the disclosing Party’s Confidential Information, as evidenced by a contemporaneous writing dated prior to the time of disclosure by the disclosing Party or its Affiliate.

4.2Authorized Disclosure. Notwithstanding the obligations set forth in Section 4.1, a Party or its Affiliate may disclose the other Party’s Confidential Information and the terms of this Agreement to the extent:

(a)such disclosure is reasonably necessary (i) for the filing or prosecuting of Patent Rights as contemplated by this Agreement; (ii) to comply with the requirements of Regulatory Authorities with respect to obtaining and maintaining Regulatory Approval of a Product or submission of information to tax or other Governmental Authorities; (iii) for prosecuting or defending litigation as contemplated by this Agreement; or (iv) complying with Applicable Law;

(b)such disclosure is reasonably necessary to its officers, directors, employees, agents, consultants, contractors, licensees, sublicensees, attorneys, accountants, sources of debt or equity financing, insurers or licensors who need to know such information in order for such Party to perform its obligations or exercise its rights under this Agreement, and to potential acquirers, merger partners, strategic partners, or sources of debt or equity financing, and their professional advisors, for use in diligence and related activities in the proposed transaction(s); provided that in each case, the disclosees are bound by written obligations of confidentiality and non-use, or by equivalent professional ethical obligations, no less stringent than those of this Agreement with a reasonable duration based on customary terms;

(c)such disclosure is reasonably necessary to any bona fide potential or actual investor, acquiror, merger partner or other financial or commercial partner for the sole purpose of evaluating an actual or potential investment, acquisition or other business relationship; provided that, in each case, the disclosees are bound by written obligations of confidentiality and non-use no less stringent than to those of this Agreement with a reasonable duration based on customary terms, and further provided that in the case of any such disclosure of Confidential Information to any actual or potential competitor of either Party, all competitively sensitive information (including, for the avoidance of doubt, all financial information) herein shall be redacted until, subject to Applicable Laws, the execution of a definitive agreement with such actual or potential competitor to implement a transaction with the receiving Party is imminent; or

(d)such disclosure is reasonably necessary to comply with Applicable Laws, including regulations promulgated by applicable security exchanges, court order, administrative subpoena or other order.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 19 -

(e)Notwithstanding the foregoing, if a Party or its Affiliate is required to make a disclosure of the other Party’s Confidential Information pursuant to Section 4.2(a)(iii)-(iv) or 4.2(d), then such Party shall (i) promptly notify the other Party of such required disclosure, (ii) give the other Party an opportunity to seek confidential treatment and, upon the other Party’s request, such Party and its Affiliates shall use reasonable efforts to obtain, or to assist the other Party in obtaining, a protective order preventing or limiting the required disclosure and (iii) if the other Party is unsuccessful in its efforts pursuant to subsection (ii), disclose only that portion of the Confidential Information that such Party is legally required to disclose.

4.3Employees and Consultants. Enteris and Cara each hereby represents that all of its employees and consultants, and all of the employees and consultants of its Affiliates, who have access to Confidential Information of the other Party are or will, prior to having such access, be bound by written obligations to maintain such Confidential Information in confidence. Each Party agrees to use, and to cause its Affiliates to use, Commercially Reasonable Efforts to enforce such obligations and to prohibit its employees and consultants from using such information except as expressly permitted hereunder. Recipient party will be liable to the other for any disclosure or misuse by its employees of Confidential Information of the disclosing Party.

4.4Publicity. The Parties shall, upon the execution of this Agreement, issue a joint press release with respect to this Agreement in a form mutually agreeable by both Parties, and each Party may make subsequent public disclosure of the contents of such press release without further approval of the other Party. After release of such press release, if either Party or its Affiliate desires to make a public announcement concerning the existence or terms of this Agreement, or any clinical or regulatory announcements, early notification of such public announcement by the proposing Party shall be given in writing to the other Party at least [***] before the proposed disclosure date and a draft of such public announcement shall be sent to the commenting Party for its review and comment at least [***] before the proposed disclosure date, but subject to Section 4.5. Under no circumstances shall any competitively sensitive information contained in this Agreement (including all financial information, including total value of this Agreement) be disclosed, except as otherwise provided in Section 4.5.

4.5Public Filings. The Parties acknowledge that either or both Parties may be obligated to file under Applicable Laws a copy of this Agreement with the U.S. Securities and Exchange Commission or other Governmental Authorities. Each Party shall be entitled to make such a required filing, provided that it requests confidential treatment of the commercial terms and sensitive technical terms hereof and thereof to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing, each Party will provide the other Party with a copy of this Agreement marked to show provisions for which such Party intends to seek confidential treatment and shall reasonably consider and incorporate the other Party’s reasonable comments thereon to the extent consistent with the legal requirements, with respect to the filing Party, governing disclosure of material agreements and material information that must be publicly filed. Further, each Party acknowledges that the other Party, or its successor, may be required by Applicable Laws to make public disclosure of events or results of activities under this Agreement, and that such disclosures may be made, if required by such Applicable Laws, prior to the expiration of the notice periods in Section 4.4., provided that a Party (or successor) shall not, in any such public disclosure, disclose any of the other Party’s Confidential Information, unless such Party is required by Applicable Law to make such a public disclosure of such particular information.  In such event, such Party shall submit the proposed disclosure in writing to the other Party as far in advance as reasonably practicable so as to provide a reasonable opportunity to comment thereon, and such Party required to make the disclosure shall consider all comments from such other Party in good faith, and shall in any event only disclose such information of the other Party as is required by Applicable Law to be disclosed publicly in such manner.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 20 -

4.6Publications and Presentations. Except for disclosures permitted pursuant to Section 4.4 or Section 4.5, if a Party wishes to make a publication relating to activities conducted under this Agreement or the results of such activities hereunder, and such publication would disclose Confidential Information of the other Party, (a) it shall deliver to the other Party a copy of any such proposed written publication or an outline of a proposed oral disclosure at least [***] prior to submission for publication or presentation, (b) the reviewing Party shall have the right to require a delay of up to [***] in publication or presentation in order to enable patent applications to be filed protecting such reviewing Party’s rights in potentially patentable inventions that are owned by such Party and that would be publicly disclosed by the publication of the information in such publication, and (c) such reviewing Party shall have the right to prohibit disclosure of any of its Confidential Information in any such proposed publication or presentation. In any such publication or presentation by a Party, the other Party’s contribution shall be duly recognized, in accordance with customary industry standards. For clarity, Cara is free to make publications about its (and its Affiliates’ and Sub-licensees’) activities under this Agreement, and results of such activities, without review by Enteris, provided that such publications do not disclose Confidential Information of Enteris. Further, Enteris covenants that it and its Affiliates shall not publish (or permit publication of) any non-public information relating to Cara’s (and its Affiliate’s and Sub-licensee’s) activities under this Agreement, or the results of such activities, without the prior written consent of Cara, such consent not to be unreasonably withheld.

4.7Permitted Publications. Notwithstanding Sections 4.4 through 4.6, either Party may include in a public disclosure or in a scientific or medical publication or representation, without prior delivery to or approval by the other Party, any information which has previously been included in a public disclosure or scientific or medical publication that has been approved or otherwise made pursuant to Section 4.4 or 4.5 or reviewed pursuant to Section 4.6 or published or publicly disclosed by the other Party. A Party relying on this Section 4.7 shall bear the burden of establishing that information has previously been included in a public disclosure or scientific or medical publication that has been approved pursuant to Section 4.4 or 4.5 or reviewed pursuant to Section 4.6 or published or publicly disclosed by the other Party. For clarity, Cara (and its Affiliates and Sub-licensees) retain the full rights to publish clinical and other data and results relating to Drug or Product without consent of or comment by Enteris, provided that such publications do not disclose Enteris Confidential Information. Cara and Enteris each may further disclose or publish that Cara and Enteris are parties to this Agreement and the general scope of the rights granted hereunder, but excluding any financial terms or the total value of the Agreement.

4.8Use of Proprietary Materials. From time to time during the Term, one Party (the “Transferring Party”) may supply the other Party (the “Recipient Party”) with Proprietary Materials of the Transferring Party for use in the Manufacture or Development of a Product. In connection therewith, each Recipient Party hereby agrees that: (a) it shall not use such Proprietary Materials for any purpose other than exercising its rights or performing its obligations hereunder; (b) it shall use such Proprietary Materials only in compliance with all Applicable Laws; (c) it shall not transfer any such Proprietary Materials to any Third Party without the prior written consent of the Transferring Party, except for (i) the transfer of Products for use in clinical trials or (ii) in a transaction expressly permitted hereby (such as transfer by Cara to its CMO); (d) the Recipient Party shall not acquire any right of ownership or title in or to such Proprietary Materials as a result of such supply by the Transferring Party; and (e) upon the expiration or termination of this Agreement, the Recipient Party shall, if and as instructed by the Transferring Party, either destroy or return any such Proprietary Materials that are not the subject of the grant of a continuing license under this Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 21 -

Article 5
Intellectual Property Rights

5.1Enteris Rights. Enteris shall own all rights, title, and interest on a worldwide basis in and to the Licensed Patent Rights and Licensed Know-how, including any Improvements (including any Patent Rights claiming or covering such Improvements) regardless of inventorship, used to formulate, develop or otherwise exploit the Drug or Product, and Enteris retains all rights to prosecute and maintain the Licensed Patent Rights at its sole discretion and sole expense. Cara shall cooperate with and assist Enteris in all reasonable respects, at Enteris’ expense, in connection with Enteris’ preparation, filing, prosecution (including review and comments regarding responses to office actions and/or official actions from worldwide patent offices) and maintenance of such Licensed Patent Rights, including by obtaining assignments to reflect chain of title consistent with the terms of this Agreement, gaining United States patent term extensions, supplementary protection certificates and any other extensions that are now or become available in the future wherever applicable to such Licensed Patent Rights.

5.2Cara Rights. Cara shall own all rights, title, and interest on a worldwide basis in and to any Inventions, other than Improvements, including any Patent Rights claiming or covering any such Invention, and Cara shall retain all rights to prosecute and maintain such Patent Rights in its sole discretion and sole expense. Further, and notwithstanding the foregoing, Cara shall own the overall formulation of the Product, provided that Enteris shall retain ownership of all Licensed Technology that claims or is incorporated in such formulation. Notwithstanding the foregoing, Cara acknowledges that a license shall be required with respect to any formulation to the extent that the formulation uses or practices issued patents or Confidential Information of Enteris in the Licensed Technology (excluding any Confidential Information that is subject to any of the exceptions in subsections 4.1(a)-(e)).

5.3Notice; Inventorship. Cara hereby agrees to promptly notify Enteris of the conception or reduction to practice of any Improvements made by or on behalf of Cara and to promptly execute any documents that may be necessary to perfect Enteris’ ownership and rights in and to any such Improvements. In case of a dispute between the Parties over whether any particular Invention is an Improvement, such dispute shall be resolved according to U.S. patent law pursuant to Article 11, with an arbitration (if conducted) by patent counsel mutually selected by the Parties who (and whose firm) is not at the time of the Dispute, and was not at any time during the [***] prior to such Dispute, performing services for either of the Parties. Expenses of the patent counsel shall be shared equally by the Parties. With respect to any Inventions that are Improvements, Cara, its Affiliates and Sub-licensees, and their respective employees, subcontractors and contractors, and agents, shall assign, and do hereby irrevocably and perpetually assign, to Enteris, all worldwide rights, title and interest in and to all such Improvements (including all Patent Rights or other intellectual property rights relating thereto).

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 22 -

5.4Third Party Infringement.

(a)Notice. If either Party becomes aware of any suspected infringement or misappropriation of any Licensed Technology that cover the Development, Manufacture or Commercialization of the Product anywhere in the Territory (each, an “Infringement”), that Party shall promptly notify the other Party within [***] and provide it with all details of such Infringement of which it is aware, excluding privileged information (each, an “Infringement Notice”).

(b)Enteris Right to Enforce. Enteris shall have the first right, but not the obligation, to address such Infringement in the Territory that involves such Licensed Technology by taking reasonable steps, which may include the institution of legal proceedings or other action, and to compromise or settle such Infringement (each, an “Infringement Response”); provided, that: (A) Enteris shall keep Cara fully informed about such Infringement Response and Cara shall provide, at Enteris’ expense all reasonable cooperation to Enteris in connection with such Infringement Response; (B) Enteris shall not take any position with respect to, or compromise or settle, any such Infringement in any way that is reasonably likely to directly and adversely affect the scope, validity or enforceability of any such Licensed Technology, without the prior consent of Cara, which consent shall not be unreasonably withheld, conditioned or delayed; and (C) if Enteris does not intend to prosecute or defend an Infringement, or ceases to diligently pursue an Infringement Response with respect to such an Infringement, it shall inform Cara in such a manner that such Infringement Response will not be prejudiced and Section 5.4(c) shall apply. [***]

(c)Cara’s Right to Enforce. If (A) Enteris informs Cara in writing that it does not intend to prosecute any Infringement Response with respect to any such Infringement, (B) within [***] after the receipt of notice of any such Infringement, Enteris has not commenced to take any Infringement Response with respect thereto, or (C) if Enteris does not diligently pursue any such Infringement Response, then, unless Enteris provides Cara with a commercially reasonable justification for its delay of such Infringement Response, and provided that such delay will not adversely affect the scope, validity or enforceability of the Licensed Technology subject to the Infringement and will not materially affect Cara’s Commercialization of Product, Cara shall have the right, at its own expense, upon written notice to Enteris to take appropriate action to address such Infringement, including by initiating an Infringement Response or taking over prosecution of any legal proceedings initiated by Enteris. In that event, Cara shall keep Enteris fully informed about such Infringement Response and shall consult with Enteris before taking any major steps during the conduct of that Infringement Response. Enteris shall provide reasonable cooperation to Cara in connection with that Infringement Response. Cara shall not take any position with respect to, or compromise or settle, such Infringement in any way that is reasonably likely to directly and adversely affect the scope, validity or enforceability of such Licensed Technology. [***]

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 23 -

(d)Right to Representation. Each Party shall have the right to participate and be represented by counsel that it selects, in any Infringement Response instituted under Section 5.4(b) or 5.4(c) by the other Party. If a Party with the right to initiate an Infringement Response under Section 5.4 to eliminate an Infringement lacks standing to do so and the other Party has standing to initiate such action, then the Party with the right to initiate an action under Section 5.4 may name the other Party as plaintiff in such action or may require the Party with standing to initiate such Infringement Response at the expense of the other Party.

(e)Cooperation. In any Infringement Response instituted under this Section 5.4, the Parties shall cooperate with and assist each other in all reasonable respects. Upon the reasonable request of the Party instituting that Infringement Response, the other Party shall join such Infringement Response and shall be represented using counsel of its own choice, at the requesting Party’s expense.

(f)Allocation of Recoveries. Any settlements, damages or monetary awards (“Recovery”) recovered by either Party pursuant to any Infringement Response shall, after reimbursing the Parties for their reasonable out-of-pocket expenses in making such recovery (which amounts shall be allocated pro rata if insufficient to cover the totality of such expenses), [***].

5.5Defense of Claims. If any action, suit or proceeding is brought against either Party or any Affiliate of either Party alleging the infringement of the Know-how or Patent Rights of a Third Party by reason of the Development, Manufacture or Commercialization of any Product, such Party shall notify the other Party within [***] of the earlier of (a) receipt of service of process in such action, suit or proceeding, or (b) the date such Party becomes aware that such action, suit or proceeding has been instituted, and the Parties shall meet as soon as possible to discuss the overall strategy for defense of such matter. Except as otherwise agreed in writing by the Parties, the Party alleged to have infringed, or whose Affiliate or Sub-licensee is alleged to have infringed, shall have the obligation to defend such action, suit or proceeding at its sole expense, and in its sole discretion; the other Party shall have the right to separate counsel at its own expense in any such action, suit or proceeding, provided that its intellectual property rights are actually at issue in the action or proceeding, and that it shall not interfere or compromise the defending Party’s defense of such action. In any such action or proceeding, the Parties shall cooperate with each other in all reasonable respects in the defense of any such action, suit or proceeding. All such expenses with respect to any such action, suit or proceeding in the Territory shall be borne solely by the Party defending such action, suit or proceeding. Each Party shall promptly furnish the other Party with a copy of each communication relating to the alleged infringement that is received by such Party including all material documents filed in any related litigations as to such infringement that are reasonably needed by the other Party, but excluding confidential or privileged communications or documents.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 24 -

5.6Patent Term Extension. The Parties shall cooperate with each other in obtaining patent term extensions or supplemental protection certificates or their equivalents in any country in the Territory where applicable to Licensed Patent Rights. Such cooperation shall include diligently and timely conferring and coordinating with respect to such matters to ensure compliance with applicable filing deadlines, and agreeing on procedures to be followed by the Parties to ensure such compliance. In the event that elections with respect to obtaining such patent term extension are to be made, Enteris shall have the right to make the election with respect to Licensed Patent Rights.

5.7Patent Marking. Cara agrees to mark, and to cause its Affiliates and Sub-licensees to mark, Products sold in the U.S. with all applicable U.S. patent numbers in issued Patent Rights that claim the Product (or its manufacture), and to mark Products shipped to or sold in other countries, in each case to comply with the patent laws and practices of the countries of manufacture, use and sale. Such marking may be on the packaging for the Products, if permitted by Applicable Laws.

Article 6
Consideration

6.1Upfront Fee. In consideration of the grant by Enteris to Cara of the license in Section 2.1, Cara shall pay Enteris or Enteris’ designees (as contemplated by the Stock Purchase Agreement) a non-refundable, non-creditable upfront fee in an aggregate amount equal to eight million dollars ($8,000,000), fifty percent (50%) of which shall be payable by transfer of immediately available funds, within five (5) days of execution of this Agreement, in accordance with the wire transfer instructions set forth in Exhibit A, attached hereto and incorporated herein, and the invoice provided in writing by Enteris to Cara prior to the Effective Date, and the other fifty percent (50%) of which shall be paid in Cara stock issued by Cara to Enteris, or its designee, pursuant to the terms of the Stock Purchase Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 25 -

6.2Milestone Payments. Cara shall make the following non-refundable, non-creditable one-time payments to Enteris within [***] after the first achievement of each of the following milestone events with respect to Cara’s first Product (or Products, cumulatively, in the case of sales milestones) (whether such milestone is achieved by Cara or its Affiliate or Sub-licensee) utilizing the Licensed Technology, regardless of indication:

	Milestone Event			Payment ($ U.S. Dollars)
Milestone #1		[***]		$	[***]
Milestone #2		[***]	*	$	[***]
Milestone #3		[***]		$	[***]
Milestone #4		[***]		$	[***]
Milestone #5		[***]		$	[***]
Milestone #6		[***]		$	[***]
Milestone #7		[***]		$	[***]

*[***]

6.3[***]

6.4Notice and Payment of Milestones. Cara shall provide Enteris with prompt written notice, in any event within [***] thereafter, upon Cara’s knowledge of the occurrence of each milestone event set forth in Section 6.2. If Enteris believes any such milestone event has occurred and has not received a written notice of same from Cara, it shall so notify Cara and shall provide to Cara documentation or other information that support its belief. Any dispute under this Section 6.4 that relates to whether or not a milestone event has occurred shall be resolved by discussion and, if needed, arbitration in accordance with Article 11. If Cara determines that there is a reasonable likelihood of a particular milestone event being achieved on or about a particular date, Cara shall use reasonable efforts to provide advance notice thereof to Enteris, which notice shall be provided solely for Enteris’ planning purposes and shall not be construed as a representation, warranty or covenant by Cara that such milestone event will occur when anticipated, or at all. Each milestone payment under Section 6.2 shall only be payable once, and, for clarity, the total amount of milestones payable under Section 6.2 shall not exceed $[***].

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 26 -

6.5Payment of Royalties; Accounting and Records.

(a)Payment of Royalties. Cara shall pay Enteris a tiered royalty on the applicable amount of Net Sales of Products in each Calendar Year (or partial Calendar Year) at the following rates:

Aggregate Amount of Net Sales in a Calendar Year for All Products in All Indications	Royalty Rate (%)
Amount of annual Net Sales [***]		[***]	%
Amount of annual Net Sales [***]		[***]	%

[***]

(b)Royalty Reductions. For sales of Product in countries where there is no valid claim in an issued patent in the Licensed Patent Rights that covers the Product, royalties for such Product in such country will be paid on Net Sales of such Product in such country at [***] of the royalty rate otherwise applicable to such Net Sales in the above schedule.

(c)Royalty Buyout.

     (i)On or before the first (1st) anniversary of the Effective Date, Cara shall have the right, but not the obligation, to terminate its obligation to pay any royalties by paying to Enteris or Enteris’ designees (as contemplated by the Stock Purchase Agreement) the sum of [***] payable in cash (the “One Year Royalty Buyout”).

     (ii)After the first (1^st) anniversary of the Effective Date but on or before the second (2nd) anniversary of the Effective Date, Cara shall have the right, but not the obligation, to terminate its obligation to pay any royalties by paying to Enteris or Enteris’ designees (as contemplated by the Stock Purchase Agreement) the sum of [***] payable in cash (the “Two Year Royalty Buyout”, collectively with the One Year Royalty Buyout, the “Royalty Buyouts”, and each a “Royalty Buyout”).

     (iii)If either (x) Cara is a “well-known seasoned issuer,” as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), as of the date of the exercise of the Royalty Buyout, or (y) (i) the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission has issued to Cara a no-action letter regarding the commencement of the holding period under Rule 144(d) promulgated under the Securities Act for such shares of Cara stock as are otherwise issuable at the election of Cara as partial payment of the Royalty Buyout as permitted under this Section 6.5(c)(iii), and such no-action letter permits tacking of such holding period back to the date of this Agreement, and (ii) sufficient time has passed since the date of this Agreement (and all other requirements under Rule 144 are met) to permit the holders of the stock to be issued by Cara in relation to the Royalty Buyout to sell all such shares on the date of Cara’s exercise of such option in compliance with Rule 144 under the Securities Act without any restrictions, then Cara shall have the option, but not the obligation, to pay fifty percent (50%) of the Royalty Buyout amount by issuing Cara stock to Enteris or its designee pursuant to the Stock Purchase Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 27 -

     (iv)In order to exercise a Royalty Buyout, Cara shall notify Enteris and, if the option to partially pay in Cara stock as permitted by Section 6.5(c)(iii) above is exercised by Cara, EBP Holdco LLC and any designees of Enteris and EBP Holdco LLC, in writing that it is paying the Royalty Buyout and shall pay such Royalty Buyout within [***] of such notice. For avoidance of doubt, upon Enteris’ receipt of the Royalty Buyout under this Section 6.5(c), no royalties shall thereafter be due to Enteris under this Agreement and the Royalty Term (and the provisions of this Section 6.5) shall end immediately. For the avoidance of doubt, the expiration of the Royalty Term, including due to payment of a Royalty Buyout, shall not affect Cara’s obligation to pay Enteris milestones pursuant to Section 6.2 of this Agreement, including milestone events based on [***]. In the event that Cara provides Enteris with a notice that it is exercising the Royalty Buyout but no payment is received by Enteris within the [***] period (other than solely due to an issue with Enteris or its bank), then the Royalty Buyout is deemed to not have been exercised. Such failure to pay the Royalty Buyout amount within that [***] period is not subject to cure.

6.6Payment Dates and Reports. Cara shall make all royalty payments due hereunder within [***] after the end of each Calendar Quarter in which the sale of such Product shall occur. Cara shall provide, within [***] after each Calendar Quarter in which a sale of such Product shall occur, a report showing: (a) the Net Sales of each Product by type of Product and country in the Territory; (b) an itemization of the deductions permitted to determine Net Sales; (c) a calculation of the amount of royalty due to Enteris, if applicable; and (d) [***]. Payment of all milestone events due hereunder, including the milestones on [***], shall be made in accordance with Section 6.2. The Parties agree that, notwithstanding anything to the contrary in the Manufacturing Services Agreement, Cara has and shall have no further obligation under Section 4.1(b) of the Services Agreement to pay any additional License Access Fees (as defined in the Manufacturing Services Agreement), and any such obligation going forward is hereby terminated.

6.7Records; Audit Rights. Cara and its Affiliates and Sub-licensees shall keep and maintain, for [***] from the date of (x) each payment of royalties under this Agreement and (y) each milestone owed, complete and accurate records of gross sales and Net Sales by Cara and its Affiliates and Sub-licensees, in sufficient detail to allow royalties and milestones on Net Sales to be determined accurately. All such records required to be maintained under this Section 6.7 shall include the information contained in the reports required under Section 6.6. Enteris shall have the right for a period of [***] after receiving any such payments to appoint at its expense an independent certified public accountant reasonably acceptable to Cara to audit such records of Cara, or its Affiliates, to verify that the amount of any such payment was correctly determined. Cara and its Affiliates shall each make its records available for audit by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon [***] written notice from Enteris. Such audit right shall not be exercised by Enteris more than once in any Calendar Year or more than once with respect to sales of a particular Product in a particular period or with respect to an individual milestone. All records made available for audit shall be deemed to be Confidential Information of Cara. The results of each audit, if any, shall be binding on both Parties absent manifest error. In the event there was an underpayment by Cara under this Agreement, Cara shall promptly (but in any event no later than [***] after Cara’s receipt of the report so concluding) make payment to Enteris of any shortfall together with interest as provided in Section 6.8 from the date such payment was due to the date paid in full. Enteris shall bear the full cost of such audit unless such audit discloses a variance to the detriment of Enteris of five percent 5% or more from the amount of the original payment calculation in which case Cara shall bear all reasonable cost of the performance of such audit.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 28 -

6.8Overdue Payments. All payments not made by Cara to Enteris when due under this Agreement shall bear interest at a rate equal at [***] (as quoted in The Wall Street Journal or its successor on the day after the payment is due) calculated from the due date to the date paid in full. Any such overdue payment shall, when made, be accompanied by, and credited first to, all interest so accrued.

6.9Payments; Withholding Tax.

(a)Payments in Dollars. All payments made by Cara under this Section shall be made by wire transfer from a banking institution in United States Dollars in accordance with instructions given in writing from time to time by the other Party.

(b)Withholding Taxes. If Applicable Laws require withholding of income or other taxes imposed upon any payments made by Cara to Enteris under this Agreement, Cara shall (i) make such withholding payments as may be required, (ii) subtract such withholding payments from such payments, (iii) submit appropriate proof of payment of the withholding taxes to Enteris within a reasonable period of time, and (iv) promptly provide Enteris with all official receipts with respect thereto. Cara shall render Enteris reasonable assistance in order to allow Enteris to obtain the benefit of any present or future treaty against double taxation which may apply to such payments.

6.10Foreign Currency Exchange. If, in any Calendar Quarter, Net Sales are made in any currency other than United States Dollars, such Net Sales shall be converted into United States Dollars by applying the exchange rate conversion consistently used by Cara in its audited consolidated accounts making use of a publicly available foreign exchange rate source.

6.11Cara Obligations. Cara shall be solely responsible for all amounts it owes to any Third Party in connection with the Development, Manufacture, or Commercialization of Products in the Field in the Territory.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 29 -

Article 7
Representations and Warranties; COVENANTS; Liability

7.1Mutual. Enteris and Cara each represents and warrants to the other Party, as of the Effective Date, as follows:

(a)It is a corporation or company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all requisite power and authority, corporate or otherwise, to execute, deliver and perform this Agreement.

(b)The execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and will not violate (a) such Party’s certificate of incorporation or bylaws, (b) any agreement, instrument or contractual obligation to which such Party is bound in any material respect, (c) any requirement of any Applicable Laws, or (d) any order, writ, judgment, injunction, decree, determination or award of any court or governmental agency presently in effect applicable to such Party.

(c)This Agreement is a legal, valid and binding obligation of such Party, enforceable against it in accordance with its terms and conditions, subject to all bankruptcy and other debtor laws and protections and to equitable principles.

(d)It is not under any obligation, contractual or otherwise, to any other person or entity that conflicts with or is inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations hereunder.

(e)Such Party has never been, and is not currently, a Debarred Entity. Each of the Parties further warrants and represents that no Debarred Entity has performed or rendered, any services or assistance on its behalf relating to activities contemplated or rights granted pursuant to this Agreement. Each Party certifies and covenants that it shall not use, in any capacity, a Debarred Entity in the performance of this Agreement. “Debarred Entity” for purposed of this Section 7.1(e) means a corporation, partnership or association that has been debarred by the FDA pursuant to 21 U.S.C. §335a (a) or (b) from submitting or assisting in the submission of any abbreviated drug application, or an employee, partner, shareholder, member, subsidiary or affiliate of a Debarred Entity.

7.2By Cara. Cara represents, warrants, and covenants to Enteris that:

(a)All of its activities and the activities of its Affiliates and its Sub-licensees, related to its use and practice of the Licensed Technology and all Development, Manufacture and Commercialization of the Products pursuant to this Agreement, shall to its knowledge comply in all material respects with all Applicable Laws.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 30 -

(b)Cara, its Affiliates, and to its knowledge its Sub-licensees, shall not encumber, with liens, mortgages, or security interests, the Licensed Technology, except as otherwise expressly permitted in this Agreement.

7.3By Enteris.

(a)Enteris owns or has license rights to all the Licensed Technology existing as of the Effective Date. Enteris is entitled to grant the licenses specified in this Agreement. The Licensed Patent Rights existing as of the Effective Date constitute all of the Patent Rights owned by or licensed to Enteris or its Affiliate as of the Effective Date that are necessary or reasonably useful to Develop, Manufacture, sell and otherwise Commercialize the Product. The Licensed Know-how existing as of the Effective Date constitute all of the Licensed Know-how owned by or licensed to Enteris or its Affiliate as of the Effective Date that are necessary or reasonably useful to Develop, Manufacture, sell and otherwise Commercialize the Product.

(b)To Enteris’ knowledge, there is no actual or threatened infringement of the Licensed Technology in the Field by any Third Party;

(c)To Enteris’ knowledge, the Licensed Patent Rights existing as of the Effective Date are subsisting and are not invalid or unenforceable, in whole or in part. As of the Effective Date, there are no claims, judgments, or settlements against, or amounts with respect thereto owed by, Enteris or any of its Affiliates relating to the Licensed Patent Rights that would have a material adverse effect on the license rights granted to Cara under this Agreement or on Cara’s ability to use or practice such license rights;

(d)As of the Effective Date, no claim or litigation has been brought against Enteris or, to Enteris’ knowledge, against any Third Party or, to Enteris’ knowledge, threatened, alleging that (A) the Licensed Patent Rights are invalid or unenforceable; or (B) the Licensed Patent Rights or the licensing or exploiting of such Licensed Patent Rights violates, infringes, or other conflicts or interferes with any intellectual property or proprietary right of any Third Party, nor is there any reasonable basis for any such claim; or (C) the Licensed Know-how has been misappropriated; or (D) the Licensed Know-how or the licensing or exploiting of such Licensed Know-how violates, misappropriates, or otherwise conflicts or interferes with any intellectual property or proprietary right of any Third Party;

(e)The practice or use of the Licensed Technology (including in the Manufacture or Commercialization of Products) does not, and to the knowledge of Enteris shall not, result in any payment obligation by Cara (of any royalty, milestone payment or other license fee), other than the payments due to Enteris under this Agreement, to any Third Party;

(f)Neither Enteris, nor any of its Affiliates, has granted any mortgage, pledge, claim, security interest, encumbrance, lien, or other charge of any kind (collectively, “liens” and each a “lien”) on any of the Licensed Technology anywhere in the Territory, and the Licensed Patents and Licensed Know-how are free and clear of all liens in the Territory; except with respect to (i) any such liens on the Licensed Technology that are junior in priority to the rights of a licensee in ordinary course of business, or (ii) liens on revenue received under this Agreement.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 31 -

(g)Within [***] of the Effective Date of this Agreement, Enteris shall have provided to Cara all material documentation, data, and information under its control requested by Cara relating to the Licensed Know-how and the use thereof in formulations, including all material safety information. All information and data provided by or on behalf of Enteris to Cara as set forth in this Section 7.3(g) in contemplation of this Agreement or the transactions contemplated hereby is, to Enteris’ knowledge, true, accurate and complete in all material respects, and Enteris shall not knowingly fail to disclose any material information or data in Enteris’ (or its Affiliate’s) control that could be reasonably expected to cause the Enteris information or data that has been disclosed to Cara to be misleading in any material respect.

7.4Warranty Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY KNOW-HOW, PATENT RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT, AND EACH PARTY HEREBY DISCLAIMS ALL SUCH OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.

7.5Indemnification; Insurance.

(a)Cara shall indemnify, defend and hold harmless Enteris and its Affiliates, and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (collectively, the “Enteris Indemnitees”), against all liabilities, damages, losses and expenses (including reasonable attorneys’ fees and expenses of litigation) (collectively, “Losses”) incurred by or imposed upon the Enteris Indemnitees, or any of them, as a direct result of claims, suits, actions, demands or proceedings (“Claims”) brought by a Third Party against Enteris Indemnitees, including, personal injury and product liability claims (collectively, “Enteris Indemnity Claims”), to the extent arising out of (i) the Development, Manufacture and/or Commercialization of any Product by Cara or any of its Affiliates, Sub-licensees and/or agents in the Territory, including warranty claims or Product recalls; (ii) any breach of this Agreement by Cara or any of its Affiliates, Sub-licensees or agents; (iii) any tort claims for the death, personal injury, or illness of any person or claims relating to any damage to any property related in any way to the rights granted under this Agreement or activities conducted by or on behalf of Cara, its Affiliates or Sub-licensees and their respective directors, officers, employees and agents, in connection with this Agreement; except, in each case, to the extent such Claim or Loss is caused by a breach by Enteris of its representations, warranties, covenants or obligations in this Agreement, or the gross negligence or willful misconduct of any Enteris Indemnitee; or (iv) the gross negligence or willful misconduct of any Cara Indemnitee, or agent of Cara; but excluding any Enteris Indemnity Claim or Losses to the extent that Enteris has an obligation to indemnify Cara Indemnitees pursuant to Section 7.5(b), as to which Claim or Losses each Party shall indemnify the other to the extent of their respective liability for such Losses.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 32 -

(b)Enteris shall indemnify, defend and hold harmless Cara, its Affiliates and Sub-licensees, and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (collectively, the “Cara Indemnitees”), against all Losses incurred by or imposed upon the Cara Indemnitees, or any of them, as a direct result of claims, suits, actions, demands or proceedings brought by a Third Party against Cara Indemnitees, including personal injury and product liability claims (collectively, “Cara Indemnity Claims”) to the extent arising out of (i) any breach of this Agreement by Enteris or any of its Affiliates or agents, except, in each case, to the extent such Claim is caused by a breach by Cara of its representations, warranties, covenants or obligations in this Agreement, or the gross negligence or willful misconduct of any Cara Indemnitee; or (ii) the gross negligence or willful misconduct of any Enteris Indemnitee; or (iii) infringement or violation of Third Party intellectual property rights to the extent due to the use or practice of the Licensed Technology; but excluding any Cara Indemnity Claim or Losses to the extent that Cara has an obligation to indemnify any Enteris Indemnitees pursuant to Section 7.5(a) as to which Claims or Losses each Party shall indemnify the other to the extent of their respective liability for such Losses.

(c)Upon receipt of notice of any Loss, or of any claim, suits, action, demand or proceeding, that may give rise to a right of indemnity from the other Party hereto, the Party seeking indemnification (the “Indemnified Party”), either on behalf of itself or, as applicable, for a member of its group entitled to such indemnity (an “Indemnified Member”), shall give prompt written notice to the other Party (the “Indemnifying Party”) of the Loss (or related claim, action, or allegation) for which indemnification is sought (a “Claim”). Provided that the Indemnifying Party is not contesting its obligation to indemnify as to the noticed Claim under this Article 7, the Indemnified Party (and the Indemnified Member, as applicable) shall permit the Indemnifying Party to control any the defense of such Claim and any litigation relating to such Claim and all related Losses and the disposition of such Claim and Losses. The Indemnifying Party shall (i) act reasonably and in good faith with respect to all matters relating to the settlement or disposition of such Claim and all related Losses as the settlement or disposition relates to such Indemnified Party and (ii) not settle or otherwise resolve such Claim and related Losses in a way that would adversely impact the Indemnified Party (or the Indemnified Member, as applicable) without the prior written consent of such Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed). Each Indemnified Party (and all applicable Indemnified Members) shall cooperate with the Indemnifying Party in its defense of any such Claim and related Losses in all reasonable respects and shall have the right to be present in person or through counsel at all legal proceedings with respect to such Claim and Loss. If the Indemnifying Party does not assume and conduct the defense of the Claim and Loss as provided above, (a) the Indemnified Party may defend against, consent to the entry of any reasonable judgment, or enter into any reasonable settlement with respect to such Loss in any manner the Indemnified Party may deem reasonably appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith), and (b) the Indemnifying Party shall remain responsible to indemnify the Indemnified Party as provided in this Article 7.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 33 -

(d)Limited Liability. EXCEPT FOR LIABILITY ARISING FROM A PARTY’S BREACH OF CONFIDENTIALITY OBLIGATIONS HEREUNDER, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS OR LOST REVENUES, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 7.5(d) IS INTENDED TO OR SHALL LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER SECTION 7.5(a) OR 7.5(b).

(e)Cara shall procure and maintain insurance, including product liability insurance, or shall self-insure, in each case in a manner adequate to cover its obligations under this Agreement and consistent with normal business practices of prudent companies similarly situated at all times during the Term and for a period of [***] thereafter. Such insurance shall provide that the policy is primary and not in excess or contributory with regard to other insurance Enteris may have. Cara shall provide Enteris with written evidence of such insurance or self-insurance upon request. Cara shall provide Enteris with written notice at least [***] prior to the cancellation, non-renewal or material change in such insurance.

The terms of this Article 7 shall survive termination of this Agreement for whatever reason. 

Article 8
Term and Termination

8.1Term. This Agreement shall commence on the Effective Date, and shall continue in full force and effect until the earlier of (i) the expiration of the Agreement upon the expiration or termination of all payment obligations under this Agreement with respect to the last Product in all countries in the Territory, or (ii) the termination of this Agreement by either Party pursuant to Sections 8.3 through 8.5, inclusive (the “Term”).

8.2Expiration of Term. Upon expiry of the Term pursuant to clause (i) of Section 8.1, all rights and licenses granted to Cara under this Agreement in respect of Products shall become fully paid-up and irrevocable with respect to all countries in the Territory.

8.3Termination for Material Breach. A Party may terminate this Agreement by notice in writing to the other Party if such other Party materially breaches its obligations under the Agreement, and does not cure such breach, in accordance with the following: In the case of such material breach, the non-breaching Party may provide the breaching Party with a written notice specifying in reasonable detail the nature of the material breach, and stating its intention to terminate this Agreement if such breach is not cured. If the material breach is not cured within sixty (60) days (or thirty (30) days with respect to a material breach of a payment obligation) after the receipt of such notice, the non-breaching Party shall be entitled, without prejudice to any of its other rights under this Agreement, and in addition to any other remedies available to it by law or in equity, to terminate this Agreement by providing written notice to the other Party, such notice to be provided no later than [***] after the end of the cure period (and subject to Article 11).

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 34 -

8.4Termination for Challenge. Enteris shall have the right to terminate this Agreement upon written notice to Cara, if all the following criteria are met: (a) Cara or any of its Affiliates formally Challenges the validity of any Licensed Patent Rights or Assists a Third Party in initiating a Challenge of any Licensed Patent Rights, and (b) Enteris provides Cara written notice that it intends to terminate this Agreement as a result of such Challenge by Cara (or its Affiliate), or of such Assist by Cara of a Third Party Challenge. Such termination by Enteris shall become effective thirty (30) days after notice of termination to Cara (but subject to Article 11), unless Cara has withdrawn such Challenge of such Licensed Patent Rights or ceased providing such Assist to the Third Party (as applicable). The notice provided by Enteris must provide the details of Enteris’ belief that Cara has initiated, or has Assisted in the initiation of, such a Challenge. If a Sub-licensee of Cara, or a Sub-licensee of Cara’s Sub-licensee, initiates a Challenge of any Licensed Patent Rights, then Cara shall, upon written notice from Enteris, terminate such sublicense or direct Cara’s Sub-licensee to do so, unless such Sub-licensee has ceased such Challenge within thirty (30) days of such written notice.

8.5Without Cause Termination. Cara may terminate this Agreement for any reason or no reason: (a) prior to receipt of first Regulatory Approval for a Product in the United States for any indication upon thirty (30) days prior written notice to Enteris or (b) on or after receipt of first Regulatory Approval for a Product in the United States for any indication upon sixty (60) days prior written notice to Enteris.

8.6Consequences of Termination. Upon early termination of this Agreement pursuant to clause (ii) of Section 8.1 for any reason (but not upon expiration of the Term pursuant to clause (i) of Section 8.1), in addition to any remedies available to a Party at law or in equity, the following provisions shall apply, as applicable:

(a)all licenses and rights granted by Enteris to Cara pursuant to this Agreement, including the licenses and rights granted to Cara under Section 2.1 shall terminate as of the effective date of termination;

(b)Cara shall not use or practice any issued Licensed Patent Rights or, to the extent consisting of Enteris Confidential Information, any Licensed Know-how that, in each case, are incorporated into any Product for any purpose;

(c)Cara shall cease all Commercialization and Development activities with respect to the Products (except as otherwise provided in this Section) and shall diligently wind down, according to good clinical practice, any clinical trials of such Product(s) that are ongoing at the time of notice of such termination or expiration, to the extent any such activities would use or practice issued claims in the Licensed Patent Rights, or Enteris Confidential Information or Licensed Know-how that is not subject to the exceptions in subclauses (a) – (e) of Section 4.1;

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 35 -

(d)all reference rights granted by Enteris to Cara under this Agreement shall cease, including Cara’s right to reference the Enteris DMF, the contents therein, and any set of documents referencing the Enteris DMF, in any Regulatory Filings, and (1) such Regulatory Filings referencing the Enteris DMF or the contents therein shall immediately be withdrawn with appropriate notification to the Regulatory Authority, and (2) all copies (in any form, including electronic) of documents referencing the Enteris DMF which have been provided to Third Parties shall be sequestered until the applicable retention period of the Regulatory Authority expires and shall thereafter be promptly destroyed; and

(e)each Party shall cease use of, and promptly return, all Confidential Information of the other Party that are not subject to a continuing license hereunder; provided, that, each Party may retain one (1) copy of the Confidential Information of the other Party in its archives solely for the purpose of establishing the contents thereof and ensuring compliance with its obligations hereunder.

(f)Except in the event Enteris terminates this Agreement pursuant to this Article 8, Cara and its Affiliates and Sub-licensees shall be entitled, during the [***] period following such termination, to continue to sell any commercial inventory of such terminated Product(s) so long as Cara pays to Enteris the amounts applicable to said subsequent sales in accordance with the terms and conditions set forth in this Agreement. Any drug substance, clinical supplies and finished forms of such terminated Product(s) remaining following such [***] period shall be destroyed.

8.7Survival. Termination or expiration of this Agreement for any reason shall be without prejudice to: (a) any obligations of the Parties that arose or accrued prior to the effective date of such termination; (b) the survival of rights specifically stated in this Agreement to survive; (c) the rights and obligations of the Parties provided in Article 1, Article 4, Article 5, Article 10, Article 11, Article 13, Sections 3.5, 3.6, 6.5, 6.7, 6.8, 6.9, 6.10, 6.11, 7.5, 8.2, 8.6, 8.7, 12.1-12.8 (including all other Sections referenced in any such Section), all of which shall survive such termination except as provided in this Article 8; and (d) any other rights or remedies provided at law or equity which either Party may otherwise have.

Article 9
Assignment; Successors and assigns

Neither Party shall be entitled to assign, transfer, charge or in any way make over the benefit and/or the burden of this Agreement without the prior written consent of the other, which consent shall not be unreasonably withheld, conditioned or delayed, except that (a) each Party shall be entitled without the prior written consent of the other Party to assign this Agreement and the rights, obligations and interests thereunder to (i) an Affiliate, provided that the assigning Party shall remain liable and responsible to the non-assigning Party for the performance and observance of all such duties and obligations by such Affiliate, or (ii) its successor in interest in connection with a sale, merger, or acquisition of all or substantially all of the assets of its business to which this Agreement relates and (b) Enteris shall be entitled without the prior written consent of Cara to (i) pledge, grant a security interest, lien or charge in, or other encumbrance upon, any of its rights or interests in this Agreement (and may assign this Agreement or the rights hereunder, in whole or in part in connection with any of the foregoing), including without limitation pursuant to the terms of any secured indebtedness (and any amendment, restatement, replacement or refinancing thereof) and any related documents, and (ii) assign all or a portion of its rights and interests to receive any payments pursuant to Article 6 to its current or former shareholders, provided, however, in such event, Cara shall, in accordance with Article 6, continue to make such payments directly to Enteris (who shall receive such payments on behalf of, and as agent for, such current or former shareholders, to the extent of the payment rights and interests so assigned). Any attempted assignment in violation of this Article 9 shall be null and void.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 36 -

The terms and conditions of this Agreement shall be binding on and inure to the benefits of permitted successors and assigns of each Party.

Article 10
Governing Law

This Agreement shall be construed, governed and interpreted in accordance with the laws of the State of New York without regard to the application of its principles of conflict of law.

Article 11
DISPUTE RESOLUTION; Arbitration

11.1Dispute Resolution. If a dispute or issues arises between the Parties regarding any matter under this Agreement, including interpretation of a provision of the Agreement or performance or breach of an obligation hereunder, (a “Dispute”) then on notice from either Party detailing such Dispute, the senior executive officers of each Party shall promptly meet and discuss and seek to resolve, reasonably and in good faith, such Dispute, for a period of up to [***] from the date of receipt of such notice. Any resolution by the Parties of such a Dispute shall be set forth in writing acknowledged by the Parties. Neither Party shall initiate any court or other legal proceeding to resolve or enforce its rights as to, any Dispute except as provide in this Article 11.

11.2Arbitration of Unresolved Disputes. For any Dispute that is not resolved by the Parties pursuant to Section 11.1 above, such Dispute shall be resolved, at the election of either Party, by binding arbitration before a panel of three (3) neutral, fully independent arbitrators in accordance with the rules of the American Arbitration Association (“AAA”) in effect at the time the proceeding is initiated, by such Party providing written notice of the arbitration, such notice setting forth in detail the Dispute to be resolved. In any such arbitration, the following procedures shall apply:

(a)The panel will be comprised of one arbitrator chosen by Cara, one by Enteris and the third, who shall act as the chairman of the panel, by the two co-arbitrators. If either Party fails or both Parties fail to choose an arbitrator or arbitrators within [***] after receiving notice of commencement of arbitration or if the two arbitrators fail to choose a third arbitrator within [***] after their appointment, then either or both Parties shall immediately request that the AAA select the remaining number of arbitrators to be selected, which arbitrator(s) shall have the requisite scientific background, experience and expertise. All such arbitrators must have no current or prior relationship with or to either Party and all its respective Affiliates, be neutral and unbiased as to the subject matter of the Dispute, and have significant experience in the creation and interpretation of license agreements similar to this Agreement. The place of arbitration shall be New York, New York. The language of the arbitration shall be English.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 37 -

(b)Either Party may apply to the arbitrators for interim injunctive relief until the arbitration decision is rendered or the Dispute is otherwise resolved. Either Party also may, without waiving any right or remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending resolution of the Dispute pursuant to this Section 11.2. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages.

(c)The award of the arbitrators shall be final and binding on the parties (except for those remedies expressly set forth in this Agreement). Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Notwithstanding anything in this Section 11.2 to the contrary, each Party shall have the right to institute judicial proceedings against the other Party or anyone acting by, through or under such other Party, in order to enforce the instituting Party’s rights hereunder through specific performance, injunction or similar equitable relief.

(d)Each Party shall bear its own costs and expenses and attorneys’ fees in connection with any such arbitration; provided, that, the arbitrators shall be authorized to determine whether a Party is the prevailing Party, and if so, to award to the prevailing Party reimbursement for its reasonable attorneys’ fees, costs and expenses (including, for example, expert witness fees and expenses, photocopy charges and travel expenses).

(e)Unless otherwise agreed by the parties, Disputes relating to patents and non-disclosure, non-use and maintenance of Confidential Information shall not be subject to arbitration, and shall be submitted to a court of competent jurisdiction.

(f)The arbitration shall be confidential. Except to the extent necessary to confirm an award or decision or as may be required by Applicable Laws, neither Party nor any arbitrator may disclose the existence or results of any arbitration without the prior written consent of both parties. In no event shall any arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the Dispute would be barred by the applicable New York statute of limitations.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 38 -

(g)In the event of a Dispute involving the alleged breach of this Agreement (including whether a Party has satisfied its diligence obligations hereunder), (i) the running of the time periods as to which a Party must cure a breach of this Agreement shall be tolled during the period the breach that is the subject matter of the Dispute is being arbitrated, and (ii) if the arbitrators render a decision that a breach of this Agreement has occurred, the arbitrators shall have no authority to modify the right of the non-breaching Party to terminate this Agreement in accordance with Section 8.3. Any disputed performance or suspended performance, pending the resolution of a Dispute that the arbitrators determine to be required to be performed by a Party, shall be completed within a reasonable time period following the final decision of the arbitrators.

(h)Any monetary payment to be made by a Party pursuant to a decision of the arbitrators shall be made in U.S. dollars, free of any tax or other deduction.

Article 12
Miscellaneous

12.1Amendment and Modification. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each Party hereto.

12.2Headings. Section and subsection headings are inserted for convenience of reference only and do not form a part of this Agreement.

12.3Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and both of which, together, shall constitute a single agreement. Each Party may execute this Agreement by facsimile transmission or in Adobe™ Portable Document Format (“PDF”) sent by electronic mail. In addition, facsimile or PDF signatures of authorized signatories of any Party will be deemed to be original signatures and will be valid and binding, and delivery of a facsimile or PDF signature by any Party will constitute due execution and delivery of this Agreement. This Agreement may be amended, modified, superseded or canceled, and any of the terms of this Agreement may be waived, only by a written instrument executed by each Party or, in the case of waiver, by the Party or parties waiving compliance. The delay or failure of either Party at any time or times to require performance or to exercise any right arising out of any provisions shall in no manner affect the rights at a later time to enforce the same.

12.4Waiver. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time and shall be signed by such Party. No single or partial exercise of any right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. No waiver by either Party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. Except as otherwise expressly set forth in this Agreement, all rights and remedies available to a Party, whether under this Agreement or afforded by Applicable Law or otherwise, will be cumulative and not in the alternative to any other rights or remedies that may be available to such Party.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 39 -

12.5No Third Party Beneficiaries. Except as set forth in Sections 7.5(a) and 7.5(b) and in Article 9, no Third Party (including employees of either Party) shall have or acquire any rights by reason of this Agreement.

12.6Independent Relationship. The Parties understand and agree that the relationship between the Parties to this Agreement is purely contractual and is limited to the activities, rights and obligations as set forth in this Agreement. Nothing in this Agreement shall be construed (a) to create or imply a general partnership between the parties, (b) to make either Party the agent of the other for any purpose, (c) to alter, amend, supersede or vitiate any other arrangements between the Parties with respect to any subject matter not covered hereunder, (d) to give either Party the right to bind the other, (e) to create any duties or obligations between the parties except as expressly set forth herein, or (f) to grant any direct or implied licenses or any other rights other than as expressly set forth herein.

12.7 Interpretation. The Parties acknowledge and agree that: (a) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; and (b) the rules of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement. In addition, unless a context otherwise requires, wherever used, the singular shall include the plural, the plural the singular, the use of any gender shall be applicable to all genders, the word “or” is used in the inclusive sense (and/or) and the word “including” is used without limitation and means “including without limitation”. Unless otherwise specified, references in this Agreement to any Section shall include all Sections, subsections and paragraphs in such Section, references to any Section shall include all subsections and paragraphs in such Section, and references in this Agreement to any subsection shall include all paragraphs in such subsection. The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. All references to days in this Agreement shall mean calendar days, unless otherwise specified. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein will be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (ii) any reference to any Applicable Laws herein will be construed as referring to such Applicable Laws as from time to time enacted, repealed or amended, (iii) any reference herein to any person will be construed to include the person’s successors and permitted assigns, (iv) any reference herein to the words “mutually agree” or “mutual written agreement” will not impose any obligation on either Party to agree to any terms relating thereto or to engage in discussions relating to such terms except as such Party may determine in such Party’s sole discretion, (v) all references herein to Sections or Exhibits will be construed to refer to Sections and Exhibits to this Agreement, (vi) except as otherwise expressly provided herein all references to “$” or “dollars” refer to the lawful money of the U.S., and (vii) the words “copy” and “copies” and words of similar import when used in this Agreement include, to the extent available, electronic copies, files or databases containing the information, files, items, documents or materials to which such words apply. This Agreement has been prepared in the English language and the English language shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or other communications between the parties regarding this Agreement shall be in the English language.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 40 -

12.8Entire Agreement; Severability. This Agreement and the Stock Purchase Agreement set forth the entire agreements between the Parties with respect to the subject matter of this Agreement and of such Stock Purchase Agreement and supersede all other agreements and understandings between the Parties with respect to such subject matter. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter of this Agreement other than as are set forth in this Agreement and any other documents delivered pursuant hereto or thereto. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall not be affected.

12.9Delay Due to Force Majeure. A Party shall not be liable for failure of or delay in performing any of its obligations set forth in this Agreement, and shall not be deemed in breach of such obligations, if such failure or delay is due to a Force Majeure. In the event of such Force Majeure, the Party affected shall use Commercially Reasonable Efforts to cure or overcome the same and resume performance of its obligations hereunder. Notice of a Party’s failure or delay in performance due to Force Majeure must be given to the other Party within thirty (30) days after the affected Party becomes aware of its occurrence. All delivery dates under this Agreement that have been affected by Force Majeure shall be tolled for the duration of such Force Majeure. If a Force Majeure persists for more than ninety (90) days, then the Parties will discuss in good faith the reasonable modification of the Parties’ respective obligations under this Agreement in order to mitigate the delays caused by such Force Majeure and the impacts of such delays.

12.10Further Assurances. Each of Enteris and Cara, upon the reasonable request of the other Party, whether before or after the Effective Date, will do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged or delivered all such further reasonable acts, deeds, documents, assignments, transfers, conveyances, powers of attorney, instruments and assurances as may be reasonably necessary to effect complete consummation of the transactions contemplated by this Agreement, and to do all such other reasonable acts, as may be necessary or reasonably needed in order to carry out the purposes and intent of this Agreement. The Parties agree to execute and deliver such other reasonable documents, certificates, agreements and other writings and to take such other reasonable actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated by this Agreement.

12.11Expenses. Each of the Parties will bear its own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and, except as set forth in this Agreement, the performance of the obligations contemplated hereby and thereby.

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 41 -

Article 13
Notice

Any notice or other documents to be given under this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered post, courier, facsimile or other electronic media to a Party or delivered in person to a Party at the address or facsimile number set out below for such Party or such other address as the Party may from time to time designate by written notice to the other(s):

Address of Enteris:

Enteris Biopharma, Inc., 83 Fulton St., Boonton, NJ 07005, USA

Facsimile: [***]

E-mail: [***]

For the attention of the President & CFO

Address of Cara:

Cara Therapeutics, Inc.

4 Stamford Plaza

107 Elm Street, 9th Floor

Stamford, CT 06902

Facsimile: [***]

E-mail: [***]

For the attention of: Chief Executive Officer

With a copy to:

Cara Therapeutics, Inc.

4 Stamford Plaza

107 Elm Street, 9th Floor

Stamford, CT 06902

Facsimile: [***]

E-mail: [***]

For the attention of: General Counsel

Any such notice or other document shall be deemed to have been received by the addressee seven (7) working days following the date of dispatch of the notice or other document by post or, where the notice or other document is sent by hand or is given by facsimile or other electronic media or transmission, simultaneously with the transmission or delivery. 

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 42 -

IN WITNESS WHEREOF, the hands of the duly authorized representatives of the Parties have caused this License Agreement to be executed effective as of the Effective Date.

Signed for and on behalf of
		/s/ Brian Zietsman
ENTERIS BIOPHARMA, INC.
	NAME	Brian Zietsman
	TITLE	President & CFO
Signed for and on behalf of
CARA THERAPEUTICS, INC.
		/s/ Derek Chalmers
	NAME	Derek Chalmers
	TITLE	CEO

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN OMITTED BECAUSE SWK HOLDINGS CORPORATION HAS DETERMINED THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO CARA THERAPEUTICS, INC. IF PUBLICLY DISCLOSED.

- 43 -

EX-31.01

EXHIBIT 31.01

CERTIFICATION

I, Winston L. Black, Chief Executive Officer of the registrant, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SWK Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2019	/s/ Winston L. Black
		Winston L. Black Chief Executive Officer

EX-31.02

EXHIBIT 31.02

CERTIFICATION

I, Charles M. Jacobson, Chief Financial Officer of the registrant, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SWK Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2019	/s/ Charles M. Jacobson
		Charles M. Jacobson Chief Financial Officer

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of SWK Holdings Corporation (the “Registrant”) on Form 10-Q for the quarterly period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Winston L. Black, Chief Executive Officer of the Registrant, certify, in accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that to the best of my knowledge:

(1) The Report, to which this certification is attached as Exhibit 32.01, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 14, 2019	/s/ Winston L. Black
		Winston L. Black Chief Executive Officer

EX-32.02

EXHIBIT 32.02

CERTIFICATION PURSUANT TO

RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934

AND 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of SWK Holdings Corporation (the “Registrant”) on Form 10-Q for the quarterly period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles M. Jacobson, Chief Financial Officer of the Registrant, certify, in accordance with Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that to the best of my knowledge:

(1) The Report, to which this certification is attached as Exhibit 32.02, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 14, 2019	/s/ Charles M. Jacobson
		Charles M. Jacobson Chief Financial Officer

XML

Net Income per Share

9 Months Ended

Sep. 30, 2019

Financial Assets

Net Income per Share

Note 2. Net Income (Loss) per Share

Basic net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock. Diluted net income per share is computed using the weighted-average number of outstanding shares of common stock, and when dilutive, shares of common stock issuable upon exercise of options and warrants deemed outstanding using the treasury stock method.

The following table shows the computation of basic and diluted net income (loss) per share for the following periods (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Numerator:
Net income (loss)	$	4,157	$	(5,716	)	$	15,043	$	1,596
Denominator:
Weighted-average shares outstanding		12,904		13,064			12,903		13,058
Effect of dilutive securities		4		—			3		4
Weighted-average diluted shares		12,908		13,064			12,906		13,062
Basic net income (loss) per share	$	0.32	$	(0.44	)	$	1.17	$	0.12
Diluted net income per share		0.32	$	(0.44	)	$	1.17	$	0.12

For the three months ended September 30, 2019 and 2018, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately $436,000 and $290,000, respectively, have been excluded from the calculation of diluted net income per share as all such securities were anti-dilutive. For the nine months ended September 30, 2019 and 2018, outstanding stock options and warrants to purchase shares of common stock in an aggregate of approximately $428,000 and $271,000, respectively, have been excluded from the calculation of diluted income per share as all such securities were anti-dilutive.

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Consolidated net income	$ 4,157	$ (5,716)	$ 15,043	$ 1,596
Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax
Comprehensive income	$ 4,157	$ (5,716)	$ 15,043	$ 1,596

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 14, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Current Fiscal Year End Date	--12-31
Entity File Number	000-27163
Entity Registrant Name	SWK Holdings Corp
Entity Central Index Key	0001089907
Entity Tax Identification Number	77-0435679
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	14755 Preston Road
Entity Address, Address Line Two	Suite 105
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75254
City Area Code	972
Local Phone Number	687-7250
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		12,907,790
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019

XML

Marketable Investments and Corporate Debt Securities (Tables)

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Schedule of marketable investments

Investments in marketable securities at September 30, 2019 and December 31, 2018 consist of the following (in thousands):

	September 30, 2019		December 31, 2018
Corporate debt securities	$	483	$	532
Equity securities		1,946		—
Total	$	2,429	$	532

Schedule of available-for-sale securities reconciliation

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities as of September 30, 2019 and December 31, 2018, are as follows (in thousands):

September 30, 2019	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	483	$	—	$	—	$	483

December 31, 2018	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	532	$	—	$	—	$	532	f

Schedule of Proceeds from sales, gross unrealized gains and gross unrealized losses for available-for-sale securities

The following table presents unrealized net losses on equity securities as prescribed by ASC 321, “Investment - Equity Securities.” ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” was adopted on January 1, 2018, at which time a cumulative effect adjustment of $213,000 was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Realized loss on write off of equity securities	$	—	$	(4	)	$	—	$	(4	)
Unrealized net gain (loss) on equity securities reflected in the Unaudited Condensed Consolidated Statements of Income (Loss)		1,787		100			1,787		(565	)

XML

Net Income per Share (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure Net Income Per Share Tables Abstract

Schedule of earnings per share, basic and diluted

The following table shows the computation of basic and diluted net income (loss) per share for the following periods (in thousands, except per share amounts):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Numerator:
Net income (loss)	$	4,157	$	(5,716	)	$	15,043	$	1,596
Denominator:
Weighted-average shares outstanding		12,904		13,064			12,903		13,058
Effect of dilutive securities		4		—			3		4
Weighted-average diluted shares		12,908		13,064			12,906		13,062
Basic net income (loss) per share	$	0.32	$	(0.44	)	$	1.17	$	0.12
Diluted net income per share		0.32	$	(0.44	)	$	1.17	$	0.12

XML

Property and Equipment, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Total	$ 1,350	$ 72
Less accumulated depreciation	(91)	(47)
Property, plant and equipment, net	1,259	25
Production Equipment and Other [Member]
Total	1,092	17
Furniture, Fixtures, and Equipment [Member]
Total	87	48
Leasehold Improvements [Member]
Total	143
Capitalized Software [Member]
Total	$ 28	$ 7

XML

Marketable Investments and Corporate Debt Securities (Details Narrative) - USD ($) $ in Thousands		9 Months Ended
	Nov. 15, 2013	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Jul. 09, 2013
Senior notes		$ 483		$ 532
Paid-in-kind interest		875	$ 144
Agreement To Purchase Senior Secured Notes [Member]
Fair Value		483
Senior notes					$ 3,000
Paid-in-kind interest	$ 100
Cash collected from debt		$ 48
Tribute [Member] | Agreement To Purchase Senior Secured Notes [Member]
Senior notes					$ 100,000

XML

Fair Value Measurements (Details 5) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Financial Assets
Cash and cash equivalents	$ 4,486	$ 20,227	$ 19,214	$ 30,557
Cash and cash equivalents at fair value	4,486	20,227
Finance receivables	175,048	166,610
Finance receivables at fair value	175,048	166,610
Marketable investments	1,946
Marketable investments at fair value	1,946
Corporate debt security	483	532
Corporate debt security at fair value	483	532
Warrant assets	2,940	2,777
Warrant assets at fair value	2,940	2,777
Financial Liabilities
Contingent consideration payable	16,274
Contingent consideration payable at fair value	16,274
Warrant liability	127	13
Gross liability at fair value	127	13
Fair Value, Inputs, Level 1 [Member]
Financial Assets
Cash and cash equivalents at fair value	4,486	20,227
Marketable investments at fair value	1,946
Financial Liabilities
Contingent consideration payable
Fair Value, Inputs, Level 3 [Member]
Financial Assets
Finance receivables at fair value	175,048	166,610
Corporate debt security at fair value	483	532
Warrant assets at fair value	2,940	2,777
Financial Liabilities
Contingent consideration payable	16,274
Contingent consideration payable at fair value	16,274
Gross liability at fair value	$ 127	$ 13

XML

Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial Assets:
Warrant assets	$ 2,940	$ 2,777
Marketable investments	1,946
Corporate debt security	483	532
Financial Liabilities:
Contingent consideration payable	16,274
Warrant liability	127	13
Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Warrant assets
Marketable investments	1,946
Financial Liabilities:
Contingent consideration payable
Warrant liability
Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Warrant assets
Marketable investments
Corporate debt security
Financial Liabilities:
Contingent consideration payable
Warrant liability
Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Warrant assets	2,940	2,777
Corporate debt security	483	532
Financial Liabilities:
Contingent consideration payable	16,274
Warrant liability	$ 127	$ 13

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 8. Related Party Transactions

On September 6, 2013, in connection with entering into a credit facility, the Company issued warrants to an affiliate of a stockholder, Carlson Capital, L.P. (the “Stockholder”), for 100,000 shares of the Company’s common stock at a strike price of $13.88 per share. The warrants have a price anti-dilution mechanism that was triggered by the price that shares were sold by the Company in a rights offering in 2014, and as a result, the strike price of the warrants was reduced to $13.48 per share.

Due to certain provisions within the warrant agreement, the warrants meet the definition of a derivative and do not qualify for a scope exception, as it is not considered indexed to the Company’s stock. As such, the warrants are reflected as a warrant liability in the unaudited condensed consolidated balance sheets. The Company recorded a nominal loss for the nine months ended September 30, 2019. The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

	September 30, 2019			December 31, 2018
Dividend rate		—			—
Risk-free rate		1.8	%		2.5	%
Expected life (years)		0.9			1.7
Expected volatility		29.1	%		18.6	%

The changes on the value of the warrant liability during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	13
Issuances		—
Changes in fair value		114
Fair value – September 30, 2019	$	127

XML

Finance Receivables

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Finance Receivables

Note 4. Finance Receivables, Net

Finance receivables are reported at their determined principal balances net of any unearned income, cumulative charge-offs and unamortized deferred fees and costs. Unearned income and deferred fees and costs are amortized to interest income based on all cash flows expected using the effective interest method.

As of September 30, 2019, the Company had a provision for credit loss allowance of $6.8 million. Of the total $6.8 million, $1.2 million and $0.6 million are associated with the Company’s Cambia® and Besivance® royalties, respectively. The remaining $5.0 million is related to the ABT Molecular Imaging, Inc., now known as Best ABT, Inc. (“Best”), second lien term loan that was recognized in order to reflect the Best royalty at its estimated fair value of $5.8 million. The carrying values of finance receivables are as follows (in thousands):

Portfolio	September 30, 2019			December 31, 2018
Term loans	$	149,858		$	136,379
Royalty purchases		31,978			36,410
Total before allowance for credit losses		181,836			172,789
Allowance for credit losses		(6,788	)		(6,179	)
Total carrying value	$	175,048		$	166,610

The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands):

	September 30, 2019						December 31, 2018
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
Term loans	$	8,337	$	141,521	$	149,858	$	8,337	$	128,042	$	136,379
Royalty purchases, net of credit loss allowance		9,303		15,887		25,190		5,784		24,447		30,231
Total carrying value	$	17,640	$	157,408	$	175,048	$	14,121	$	152,489	$	166,610

As of September 30, 2019, the Company had three finance receivables in nonaccrual status: (a) the term loan to B&D Dental Corporation (“B&D”), with a net carrying value of $8.3 million, (b) the Best royalty, with a net carrying value of $5.8 million, and (c) the Tissue Regeneration Therapeutics, Inc. (“TRT”) royalty, with a net carrying value of $3.6 million. As of December 31, 2018, the Company had two finance receivables in nonaccrual status: (a) the term loan to B&D, with a net carrying value of $8.3 million, and (b) the Best royalty, with a net carrying value of $5.8 million. Although in nonaccrual status, neither the term loan nor the royalties were considered impaired as of September 30, 2019. The Company collected $33,000 on one of its nonaccrual royalties during the nine months ended September 30, 2019.

Besivance

On April 2, 2013, the Company purchased an effective 2.4 percent royalty on sales of Besivance® from InSite Vision for $6.0 million. Besivance is marketed by Bausch & Lomb, formerly known as Valeant Pharmaceuticals. Sales performance of Besivance® has weakened primarily due to substantial declines in prescription volumes, which in conjunction with elevated sales chargebacks and various rebates (gross sales to net sales deductions), has resulted in material reductions in the product’s net sales and associated royalties payable to the Company. During the three months ended March 31, 2019, the Company reduced its expectations for future royalty receipts and recognized an allowance for credit loss on the royalty purchase of $0.6 million.

TRT

On June 13, 2013, the Company purchased royalties from TRT related to its technology licenses in the family cord banking services sector for $2.0 million, and on October 20, 2014, funded an additional $1.25 million upon the achievement of royalty receipts-based milestones. During the quarter ended March 31, 2016, royalty payments from the primary U.S. licensee ended as a result of the licensee terminating a technology license. The Company and TRT continue to evaluate both options in regard to enforcing TRT’s intellectual property rights against this licensee, as well as seeking additional U.S. licensees. TRT’s Canadian licensee continues to pay royalties. The Company is in discussions with TRT to restructure the purchase agreement. Given uncertainties regarding the outcome of the negotiations and the ultimate timing of cash flows related to the U.S. intellectual property, the Company has placed the TRT royalty on non-accrual status, although does not consider it impaired. The Company evaluated several factors in this determination, including input from intellectual property counsel regarding the strength of the related intellectual property and continued receipt of Canadian licensee royalty payments.

XML

Segment Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Information

Note 12. Segment Information

Selected financial and descriptive information is required to be provided about reportable operating segments, considering a “management approach” concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the Company for making operating decisions, allocating resources, and assessing performance. Consequently, the segments are evident from the structure of the Company’s internal organization, focusing on financial information that a Company’s chief operating decision-makers use to make decisions about the Company’s operating matters.

As described in Note 1, “SWK Holdings Corporation and Summary of Significant Accounting Policies,” the Company has determined it has two reportable segments: Finance Receivables and Pharmaceutical Development, and each are individually managed and provide separate services. Revenues by segment represent revenues earned on the services offered within each segment.

Segment performance is evaluated based on several factors, including income (loss) from continuing operations before income. Management uses this measure of profit (loss) to evaluate segment performance because the Company believes this measure is indicative of performance trends and the overall earnings potential of each segment.

The following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands):

	Three Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	6,198	$	149	$	2		$	6,349
Provision for credit losses and impairment expense		—		—		—			—
Interest expense		79		—		—			79
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		353		5			358
Other income (expense), net		734		—		(99	)		635
Income tax (benefit) expense		—		—		(614	)		(614	)
	Nine Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	21,243	$	149	$	4		$	21,396
Provision for credit losses and impairment expense		609		—		—			609
Interest expense		259		—		—			259
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		354		14			368
Other income (expense), net		1,755		—		(114	)		1,641
Income tax (benefit) expense		—		—		1,171			1,171

Included in Holdings Company and Other are the expenses of the parent holding company and certain other enterprise-wide overhead costs, including public company costs and non-Enteris corporate employees, which have been included for purposes of reconciling to the consolidated amounts.

Of the $2.4 million and $4.7 million included in Holdings Company and Other general and administrative expense for the three and nine months ended September 30, 2019, respectively, $1.1 million relates to the acquisition of Enteris for both the three and nine months ended September 30, 2019. 

XML

SWK Holdings Corporation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands		9 Months Ended
	Nov. 14, 2019	Sep. 30, 2019
Inventory, Raw Material		$ 200
Furniture, Fixtures, and Equipment [Member] | Minimum [Member]
Useful Life of Property Plant and Equipment		3 years
Furniture, Fixtures, and Equipment [Member] | Maximum [Member]
Useful Life of Property Plant and Equipment		10 years
Subsequent Event [Member] | Life Science [Member]
Business Combination, Aggregate Funding	$ 523,200

XML

Business Combinations (Details 3) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Disclosure Business Combinations Details 3Abstract
Goodwill
Acquisition of Enteris	4,602
Goodwill	$ 4,602

XML

Fair Value Measurements (Details 4) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial Assets:
Impaired loans	$ 2,940	$ 2,777
Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Impaired loans	2,940	2,777
Tribute Warrant [Member] | Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Impaired loans	6,314	8,227
Marketable Securities [Member] | Tribute Warrant [Member]
Financial Assets:
Impaired loans	$ 6,314	$ 8,227

XML

Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Jan. 28, 2019	Sep. 30, 2019	Sep. 30, 2018
Options exercise price, per share
Compensation for non-employee directors (in shares)		10,069	15,397
Allocated share-based compensation		$ 100	$ 200
Value of compensation for non-employee directors		$ 300	$ 200
Restricted Stock [Member] | Chief Executive Officer [Member]
Options granted	37,500
Stock Incentive Plan [Member] | Chief Executive Officer [Member]
Options granted	75,000
Options exercise price, per share	$ 12.50

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 11. Fair Value Measurements

The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Active markets are considered to be those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.
Level 3	Unobservable inputs are not corroborated by market data. This category is comprised of financial and non-financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies using significant inputs that are generally less readily observable from objective sources.

Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels during the nine months ended September 30, 2019.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments, other than investment in affiliates.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Cash and cash equivalents

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Marketable Investments

Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices).

Finance Receivables

The fair values of finance receivables are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the finance receivables. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. These receivables are classified as Level 3. Finance receivables are not measured at fair value on a recurring basis, but estimates of fair value are reflected below.

Contingent Consideration

The Company recorded contingent consideration related to the August 2019 acquisition of Enteris and sharing of certain milestone and royalties due to Enteris pursuant to the Cara License, as well as certain profits arising from milestones and royalties associated with the out-licensing of three of Enteris’ wholly-owned pharmaceutical development candidates, likely from the out-license of such products to third party pharmaceutical companies. Please refer to the Pharmaceutical Development Segment - Acquisition of Enteris BioPharma, Inc. section of Note 1 for further details on the Company’s acquisition of Enteris and the contingent consideration.

The fair value measurements of contingent consideration obligations and the related intangible assets arising from business combinations are classified as Level 3 estimates under the fair value hierarchy as these items have been valued using unobservable inputs. These inputs include: (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

During the nine months ended September 30, 2019, the Company recorded a contingent consideration liability of $16.3 million.

Marketable Investments and Derivative Securities

Marketable Investments

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities would be classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets or broker quotes utilizing observable inputs, and accordingly these securities would be classified as Level 2. If market prices are not available and there are no observable inputs, then fair value would be estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes. Such securities would be classified as Level 3, if the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company checks the validity of received prices based on comparison to prices of other similar assets and market data such as relevant bench mark indices. Available-for-sale securities are measured at fair value on a recurring basis, while securities with no readily available fair market value are not, but estimates of fair value are reflected below.

Derivative Securities

For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, would be classified as Level 1. For non-exchange traded derivatives, fair value is based on option pricing models and are classified as Level 3.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,940	$	—	$	—	$	2,940
Marketable investments		1,946		1,946		—		—
Corporate debt security		483		—		—		483
Financial Liabilities:
Contingent consideration payable	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		—		—		127

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical  Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,777	$	—	$	—	$	2,777
Corporate debt securities		532		—		—		532
Financial Liabilities:
Warrant liability	$	13	$	—	$	—	$	13

The changes on the value of the warrant assets during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	2,777
Issued		195
Canceled		—
Change in fair value		(32	)
Fair value – September 30, 2019	$	2,940

The Company holds warrants issued to the Company in conjunction with certain term loan investments. These warrants meet the definition of a derivative and are included in the unaudited condensed consolidated balance sheets. The fair values for warrants outstanding, which do not have a readily determinable value, are measured using the Black-Scholes option pricing model. The following ranges of assumptions were used in the models to determine fair value:

	September 30, 2019			December 31, 2018
Dividend rate range		—			—
Risk-free rate range		1.6	%		2.5% to 2.6	%
Expected life (years) range		4.8 to 7.6			4.8 to 7.9
Expected volatility range		69.0% to 92.7	%		67.6% to 101.8	%

As of September 30, 2019 and December 31, 2018, the Company had two royalties, Besivance® and Cambia®, that were deemed to be impaired based on reductions in carrying values in prior periods. The following table presents these royalties measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Impaired royalties	$	6,314	$	—	$	—	$	6,314
December 31, 2018
Impaired royalties	$	8,227	$	—	$	—	$	8,227

There were no liabilities measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018.

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments.

As of September 30, 2019 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	4,486	$	4,486	$	4,486	$	—	$	—
Finance receivables		175,048		175,048		—		—		175,048
Marketable investments		1,946		1,946		1,946		—		—
Corporate debt security		483		483		—		—		483
Warrant assets		2,940		2,940		—		—		2,940
Financial Liabilities
Contingent consideration payable	$	16,274	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		127		—		—		127

As of December 31, 2018 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	20,227	$	20,227	$	20,227	$	—	$	—
Finance receivables		166,610		166,610		—		—		166,610
Corporate debt security		532		532		—		—		532
Warrant assets		2,777		2,777		—		—		2,777
Financial Liabilities
Warrant liability	$	13	$	13	$	—	$	—	$	13

XML

Revolving Credit Facility

9 Months Ended

Sep. 30, 2019

SWKHP Holdings LP [Member]

Revolving Credit Facility

Note 7. Revolving Credit Facility

On June 29, 2018, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with State Bank and Trust Company as a lender and the administrative agent (“State Bank”) pursuant to which State Bank will provide the Company with up to a $20 million revolving senior secured credit facility, which the Company can draw down and repay until maturity, subject to borrowing base eligibility. The Loan Agreement matures on June 29, 2021.

The Loan Agreement accrues interest at the Daily LIBOR Rate, with a floor of 1.00 percent, plus a 3.25 percent margin and principal is repayable in full at maturity. Interest is generally required to be paid monthly in arrears. The Loan Agreement requires the payment of an unused line fee of 0.50 percent, which will be recorded as interest expense. The Company paid $0.5 million in fees at closing, which have been capitalized as deferred financing costs and are being amortized on a straight-line basis over the term of the Loan Agreement.

The Loan Agreement has an advance rate against the Company’s finance receivables portfolio, including 85 percent against senior first lien loans, 70 percent against second lien loans and 50 percent against royalty receivables, subject to certain eligibility requirements as defined in the Loan Agreement. The Loan Agreement contains certain affirmative and negative covenants including minimum asset coverage and minimum interest coverage ratios.

During the nine months ended September 30, 2019 and 2018, the Company recognized $0.3 million and $0.1 million, respectively, of interest expense. As of September 30, 2019, no amount was outstanding under the Loan Agreement, and $20.0 million was available for borrowing.

XML

Business Combinations

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Combinations

Note 3. Business Combinations

On August 26, 2019, Enteris, a biotechnology company offering innovative formulation solutions utilizing its proprietary oral drug delivery technology, merged with a wholly-owned subsidiary of the Company, with Enteris continuing as the surviving entity. The total merger consideration was $36.3 million, which included contingent consideration of $16.3 million. The merger consideration is subject to certain adjustments with respect to cash, debt, working capital, transaction expenses and the value of the contingent consideration agreement entered into, in connection with the transaction.

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the merger consideration was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The excess of the merger consideration over the estimated fair value of the net assets of Enteris was recorded as goodwill, which consists largely of synergies and the acquisition of intangible assets. The resulting goodwill is not expected to be deductible for tax purpose.

The allocation of the merger consideration has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, including tax estimates and potential indemnities, may be revised as additional information becomes available. The Company will finalize the acquisition accounting within the required measurement period of one year.

The following table summarizes the estimated allocation of the merger consideration (at fair value) to the assets and liabilities of Enteris as of August 26, 2019 (the date of acquisition) (in thousands):

	Initial Fair Value Estimate
Cash	$	334
Accounts receivable		145
Inventory		274
Prepaid expenses and other current assets		121
Property and equipment		1,179
Patents and other intangible assets		33,000
Right of use operating lease asset		348
Other assets		50
Goodwill		4,602
Accounts payable		(254	)
Accrued expenses and other current liabilities		(1,360	)
Deferred revenue		(385	)
Lease liability		(348	)
Deferred tax liability		(1,415	)
Total purchase price	$	36,289

Revenues and net loss of Enteris from August 26, 2019 (the date of acquisition) through September 30, 2019 were $0.1 million and $0.8 million, respectively. Acquisition-related expenses are expensed as incurred.

Unaudited Supplemental Pro Forma Information

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2018, the earliest period presented herein (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Revenues	$	14,664	$	6,495		$	34,355	$	22,160
Net income (loss)	$	9,722	$	(7,573	)	$	19,775	$	(3,568	)
Net income (loss) per share - basic and diluted	$	0.75	$	(0.58	)	$	1.53	$	(0.27	)

The pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The pro forma adjustments include incremental amortization and depreciation of intangible assets and property and equipment based on preliminary values of each asset and acquisition-related expenses. The pro forma financial information excludes non-recurring acquisition-related expenses. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.

Goodwill

The change in the carrying amount of goodwill from December 31, 2018 to September 30, 2019 is as follows, with the addition solely due to the acquisition of Enteris (in thousands):

	Net Book Value
December 31, 2018	$	—
Acquisition of Enteris		4,602
September 30, 2019	$	4,602

As the goodwill is attributable to the acquisition of Enteris, the Company will perform the annual goodwill impairment test during the fourth quarter of every year, commencing in 2020.

Intangible Assets

As of September 30, 2019, the gross book value and accumulated amortization of intangible assets were as follows (in thousands, except estimated useful life data):

	As of September 30, 2019
	Gross Book Value		Accumulated Amortization		Net Book Value		Estimated Useful Life
Cara licensing agreement	$	31,500	$	316	$	31,184		10
In-process research and development		1,017		—		1,017		N/A
Trade names and trademarks		250		2		248		10
Customer relationships		250		2		248		10
		33,017		320		32,697
Deferred patent costs		6		—		6		N/A
Total intangibles	$	33,023	$	320	$	32,703

Amortization expense from the acquisition of Enteris was $0.3 million for the period ended September 30, 2019 and was recorded in depreciation and amortization expense. Based on amounts recorded at September 30, 2019, the Company will recognize acquired intangible asset amortization as follows (in thousands):

Remainder of 2019	$	800
2020		3,217
2021		3,200
2022		3,200
2023		3,200
Thereafter		19,080
	$	32,697

XML

Net Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator:
Net income (loss) attributable to SWK Holdings Corporation Stockholders	$ 4,157	$ 4,327	$ 6,559	$ (5,716)	$ 3,668	$ 3,644	$ 15,043	$ 1,596
Denominator:
Weighted-average shares outstanding	12,904,000			13,064,000			12,903,000	13,058,000
Effect of dilutive securities	4,000						3,000	4,000
Weighted-average diluted shares	12,908,000			13,064,000			12,906,000	13,062,000
Basic income (loss) per share attributable to SWK Holdings Corporation Stockholders	$ 0.32			$ (0.44)			$ 1.17	$ 0.12
Diluted income (loss) per share attributable to SWK Holdings Corporation Stockholders	$ 0.32			$ (0.44)			$ 1.17	$ 0.12
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)	436,000			290,000			428,000	271,000

XML

Business Combinations (Details 4) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Gross Book Value	$ 33,023
Accumulated Amortization	320
Net Book Value	32,703
Cara Licensing Agreement [Member]
Gross Book Value	31,500
Accumulated Amortization	316
Net Book Value	$ 31,184
Estimated Useful Life	10 years
In-process research and development [Member]
Gross Book Value	$ 1,017
Accumulated Amortization
Net Book Value	1,017
Trademarks and Trade Names [Member]
Gross Book Value	250
Accumulated Amortization	2
Net Book Value	$ 248
Estimated Useful Life	10 years
Customer Relationships [Member]
Gross Book Value	$ 250
Accumulated Amortization	2
Net Book Value	$ 248
Estimated Useful Life	10 years
Intangible Assets [Member]
Gross Book Value	$ 33,017
Accumulated Amortization	320
Net Book Value	32,697
Deferred Patent Costs [Member]
Gross Book Value	6
Accumulated Amortization
Net Book Value	$ 6

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues
Finance receivable interest income, including fees	$ 6,198	$ 5,882	$ 21,243	$ 19,463
Pharmaceutical development	149		149
Other	2	2	4	10
Revenues	6,349	5,884	21,396	19,473
Costs and expenses:
Provision for loan credit losses		5,000	609	6,179
Impairment expense		7,799		7,799
Interest expense	79	79	259	80
Pharmaceutical manufacturing, research and development expense	286		286
Depreciation and amortization expense	358	4	368	12
General and administrative	2,718	1,247	5,301	3,637
Total costs and expenses	3,441	14,129	6,823	17,707
Other income (expense), net
Unrealized net gain on warrants	(1,152)	819	(146)	881
Unrealized net loss on equity securities	1,787	100	1,787	(565)
Loss on write off of investments		(87)		(87)
Income (loss) before provision (benifit) for income taxes	3,543	(7,413)	16,214	1,995
Provision (benefit) for income taxes	(614)	(1,697)	1,171	399
Consolidated net income	$ 4,157	$ (5,716)	$ 15,043	$ 1,596
Net income (loss) per share attributable to SWK Holdings Corporation Stockholders
Basic (in dollars per share)	$ 0.32	$ (0.44)	$ 1.17	$ 0.12
Diluted (in dollars per share)	$ 0.32	$ (0.44)	$ 1.17	$ 0.12
Weighted Average Shares
Basic (in shares)	12,904,000	13,064,000	12,903,000	13,058,000
Diluted (in shares)	12,908,000	13,064,000	12,906,000	13,062,000

XML

SWK Holdings Corporation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

SWK Holdings Corporation and Summary of Significant Accounting Policies

Note 1. SWK Holdings Corporation and Summary of Significant Accounting Policies

Nature of Operations

SWK Holdings Corporation (the “Company”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, the Company commenced its strategy of building a specialty finance and asset management business. In August 2019, the Company commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. The Company’s operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” The Company allocates capital to each segment in order to generate income through the sales of life science products by third parties. The Company is headquartered in Dallas, Texas, and as of September 30, 2019, the Company had 31 employees.

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. However, at this time, under current law, the Company does not anticipate that the Finance Receivables or Pharmaceutical Development segments will generate sufficient income to permit the Company to utilize all of its NOLs prior to their respective expiration dates. As such, it is possible that the Company might pursue additional strategies that it believes might result in the ability to utilize more of the NOLs.

Finance Receivables Segment

The Company’s Finance Receivables segment strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. This segment is primarily focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. The Company has been deploying its assets to earn interest, fees, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis. In addition, through the Company’s wholly-owned subsidiary, SWK Advisors LLC, the Company provides non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life science finance. SWK Advisors LLC is registered as an investment advisor with the Texas State Securities Board. The Company intends to fund transactions through its own working capital and its revolving credit facility, as well as by building its asset management business by raising additional third-party capital to be invested alongside the Company’s capital.

The Company fills a niche that it believes is underserved in the sub-$50 million transaction size. Since many of its competitors that provide longer term, non-traditional debt and/or royalty-related financing options have much greater financial resources than the Company, they tend to not focus on transaction sizes below $50 million, as it is generally inefficient for them to do so. In addition, the Company does not believe that a sufficient number of other companies offer similar types of long-term financing options to fill the demand of the sub-$50 million market. As such, the Company believes it faces less competition from such investors in transactions that are less than $50 million.

As of November 14, 2019, and since inception of the strategy, the Company and its partners have executed transactions with 35 different parties under its specialty finance strategy, funding an aggregate $523.2 million in various financial products across the life science sector. The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property.

Pharmaceutical Development Segment

On August 26, 2019, the Company commenced its Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). SWK Products Holdings LLC (“SWK Products”), a wholly-owned subsidiary of the Company, entered into a merger agreement pursuant to which Enteris became a wholly-owned subsidiary of SWK Products. SWK Products paid $21.5 million to the former owner of Enteris (“Seller”) at closing, and according to the terms and conditions of the merger agreement, Enteris and Seller will share in the economics of certain Enteris assets per the following:

• Milestone and royalty proceeds of the Non-Exclusive License Agreement (“Cara License”) between Enteris and Cara Therapeutics, Inc. (“Cara”):

◦ Seller received 100 percent of the $8.0 million upfront amount paid upon execution of the Cara License;

◦ Seller will receive 40 percent of the first milestone payment, with Enteris to receive 60 percent of such payment;

◦ Seller will receive 75 percent of any remaining milestone and royalty payments until Seller receives an aggregate $32.75 million, excluding the first milestone payment, with Enteris entitled to the remaining 25 percent; and

◦ All proceeds thereafter will be split evenly between Enteris and Seller.

• Certain profits arising from milestones and royalties associated with the out-licensing of three of Enteris’ wholly-owned pharmaceutical development candidates, likely from the out-license of such products to third party pharmaceutical companies:

◦ For Ovarest and Tobrate, after Enteris recovers 100 percent of all investment in such products, Seller will receive 60 percent of the first $5.0 million of the profit from each product until Seller receives an aggregate of $3.0 million for each product, and thereafter Enteris will receive 70 percent of any remaining profits, per product; and

◦ For the octreotide pharmaceutical development product candidate, after Enteris recovers 300 percent of all investment in the octreotide product candidate, Seller will be entitled to receive 10 percent of any remaining profits from that product, with Enteris receiving the remaining 90 percent.

Any amount of contingent consideration paid to the Seller pursuant to the Cara License, and the Ovarest, Tobrate and the octreotide pharmaceutical development product candidate profit splits, will be paid out of payments received from third parties for each respective program.

Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence^® platform. Since its founding in 2013, Enteris has advanced multiple internal and external programs leveraging Peptelligence^®, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation. Peptelligence^® utilizes a unique multifaceted approach to increase the solubility and absorption of peptides and small molecules, addressing the complex challenges regarding solubility and permeability of therapeutics with low oral bioavailability. Peptelligence^® is protected by an extensive patent estate that extends until 2036.

The Company’s strategy is to utilize the Peptelligence^® platform to create a wholly-owned portfolio of milestone and royalty income by out-licensing its technology in two ways. First, the Company intends to on out-license its technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, the Company intends to out-license to pharmaceutical companies its internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence^® enables oral delivery, resulting in meaningful improvements for patients and caregivers. The Company also generates income by providing customers pharmaceutical development services, formulation and manufacturing with the ultimate goal of generating new out-license agreements of the technology.

Peptelligence^® is the subject of several active external development programs, the most advanced of which include Taurus Development Company’s TBRIA, an oral calcitonin for patients with postmenopausal osteoporosis, and an oral formulation of Cara’s KORSUVA™, a potent peripheral kappa opioid receptor agonist for chronic pain and pruritus, currently in Phase II clinical development.

The Company’s internal product pipeline consists of Ovarest^® (oral leuprolide tablet), currently being evaluated for endometriosis, which has demonstrated positive results in several clinical studies, including a Phase 2 trial, and Tobrate™ (oral tobramycin tablet) for the treatment of uncomplicated urinary tract infection (uUTI). A third internal compound, octreotide, is currently in preclinical development. The Company has not yet out-licensed any of its internal product pipeline.

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. The Company consolidates a variable interest entity (“VIE”) when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts and transactions.

The Company owns interests in various partnerships and limited liability companies, or LLCs. The Company consolidates its investments in these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even though the Company’s ownership may be less than 50 percent, the related governing agreements provide the Company with broad powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s consolidated financial statements, it would have no effect on its operations and/or total stockholders’ equity attributable to the Company.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019.

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts for prior periods have been reclassified to be consistent with current year presentation and have no impact on previously reported total assets, total stockholders’ equity or net income (loss).

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition; stock-based compensation; valuation of accounts receivable; impairment of financing receivables; long-lived assets; property, plant and equipment; intangible assets; goodwill; valuation of warrants; contingent consideration; income taxes; and contingencies and litigation, among others. Some of these judgments can be subjective and complex, and consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturns, can increase the uncertainty already inherent in the Company’s estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

The most significant estimates and assumptions are used to determine amounts and values of, but are not limited to: revenue recognition related to product and collaboration revenue; acquisition date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill; licensing agreements; in-process research and development; other intangible assets; contingent consideration; and income taxes, inclusive of a valuation allowance.

Business Combinations

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within selling, general and administrative expenses. Refer to Note 3, Business Combinations, for further information regarding our acquisition of Enteris during the three months ended September 30, 2019.

Segment Information

The Company earns revenues from its two U.S.-based business segments: as a specialty finance and asset management business offering customized financing solutions to a broad range of life-sciences companies, and as of August 26, 2019, the Company’s offering of oral therapeutic formulation solutions built around Enteris’ pharmaceutical Peptelligence^® platform, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules in an enteric-coated tablet formulation.

The financial results of Enteris are included in the Pharmaceutical Development segment as of the acquisition date.

Revenue Recognition

The Company’s Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners, under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

Goodwill and Intangible Assets

The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill arising from the Enteris acquisition has been allocated to the Pharmaceutical Development segment.

Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.

Inventory

Inventories are stated at the lower of cost or net realizable value, valued at specifically identified cost which approximates the first-in, first-out (“FIFO”) method. The components of inventory include raw materials of $0.2 million and are reflected in Other Assets in the Unaudited Condensed Consolidated Balance Sheets.

Property and Equipment, Net

Property and equipment are recorded at cost less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in current liabilities. When property is retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in Other Income, Net (within Operating Income) in the Unaudited Condensed Consolidated Statements of Income (Loss).

Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows:

Asset	Estimated Useful Life
Leasehold improvements	Lesser of lease term or useful life
Furniture, fixtures, and equipment	3 to 10 years

Deferred Revenue and Deferred Costs

Deferred revenue includes amounts that have been billed per the contractual terms but have not been recognized as revenue. The Company classifies as current the portion of deferred revenue that are expected to be recognized within one year from the balance sheet date. Deferred revenue of $0.3 million is included in accounts payable and other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets.

Research and Development

Research and development expenses include the costs associated with internal research and development and research and development conducted for the Company by third parties. These costs primarily consist of salaries, pre-clinical and clinical trials, outside consultants, and supplies. All research and development costs discussed above are expensed as incurred. Third-party expenses reimbursed under research and development contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research and development expense in the Unaudited Condensed Consolidated Statements of Income (Loss).

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 updates the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, (ii) modifying certain requirements, including clarifying that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date and (iii) adding certain requirements, including disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for any eliminated or modified disclosures. The Company is currently evaluating the new guidance but believes it will not have a material impact on its consolidated financial statements, as the Company has had no historical transfers between hierarchies.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The new standard adds an impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of losses. The ASU describes the impairment allowance as a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be measured in a manner similar to current GAAP; however, the amendments in this update require that credit losses be presented as an allowance rather than as a write-down, which will allow an entity the ability to record reversals of credit losses in current period net income. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The Company is currently evaluating the new guidance but believes it is likely to incur more upfront losses on its portfolio under the new CECL model.

In February 2016, the FASB issued ASU No. 2016-02, Leases, as amended by subsequent ASUs (Topic 842). ASU 2016-02 supersedes guidance related to accounting for leases and provides for the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The objective of the ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. ASU 2016-02 does not fundamentally change lessor accounting; however, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within GAAP. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective transition method, which permits application of the new standard on the adoption date as opposed to the earliest comparative period presented in the financial statements. In addition, the Company elected to use the available practical expedient package, and therefore did not reassess classification of its existing leases. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

XML

Property and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2019

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment, net consisted of the following as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019			December 31, 2018
Production equipment and other	$	1,092		$	17
Furniture and fixtures		87			48
Leasehold improvements		143			—
Capitalized software		28			7
Total		1,350			72
Less accumulated depreciation and amortization		(91	)		(47	)
Property and equipment, net	$	1,259		$	25

XML

SWK Holdings Corporation and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Swk Holdings Corporation And Summary Of Significant Accounting Policies

Schedule of useful life of Property Plant and Equipment

The range of estimated useful lives is as follows:

Asset	Estimated Useful Life
Leasehold improvements	Lesser of lease term or useful life
Furniture, fixtures, and equipment	3 to 10 years

XML

Property and Equipment, Net (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Depreciation Expense	$ 358	$ 4	$ 368	$ 12
Property, Plant and Equipment [Member]
Depreciation Expense	$ 36,400	$ 2,400	$ 43,800	$ 9,300

XML

Revolving Credit Facility (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disclosure Revolving Credit Facility Details Narrative Abstract
Maximum Revolving Credit Available	$ 20,000		$ 20,000
Remaining Revolving Credit	20,000		20,000
Interest expense	$ 79	$ 79	$ 259	$ 80

XML

Subsequent Events (Details Narrative) - USD ($) $ in Thousands	Nov. 13, 2019	Oct. 25, 2019	Sep. 30, 2019
Term Loan, Maximum Amount			$ 20,000
Term Loan, Remaining Capacity			$ 20,000
Subsequent Event [Member] | Cheetah Medical, Inc. [Member]
Credit Facility Repaid		$ 11,400
Exit Fees		1,200
Proceeds of Warrants		$ 200
Subsequent Event [Member] | Eton Pharmaceuticals, Inc. [Member]
Term Loan, Maximum Amount	$ 10,000
Term Loan, Remaining Capacity	$ 5,000
Term Loan, Interest	The loan bears interest at the greater of (a) three-month LIBOR and (b) 2.0 percent, plus a margin of 10.0 percent, payable in cash, quarterly in arrears.

XML

Fair Value Measurements (Details 2) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Fair Value Disclosures [Abstract]
Fair value - December 31, 2017	$ 2,777
Issuances	195
Canceled
Change in fair value	(32)
Fair value - June 30, 2018	$ 2,940

XML

Related Party Transactions (Details Narartive) - Delayed Draw [Member] - $ / shares	9 Months Ended
	Sep. 30, 2019	Sep. 06, 2013
Number of securities called by warrants or rights (in shares)		100,000
Exercise price of warrants or rights (in dollars per Share)		$ 13.88
Reduction in strike price	$ 13.48

XML

Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 6,349	$ 5,884	$ 21,396	$ 19,473
Provision for credit losses and impairment expense		5,000	609	6,179
Interest expense	79	79	259	80
Pharmaceutical manufacturing, research and development expense	286		286
Depreciation and amortization	358	4	368	12
Other income (expense), net	635		1,641
Income tax (benefit) expense	(614)	$ (1,697)	1,171	$ 399
Finance Receivables [Member]
Revenues	6,198		21,243
Provision for credit losses and impairment expense			609
Interest expense	79		259
Pharmaceutical manufacturing, research and development expense
Depreciation and amortization
Other income (expense), net	734		1,755
Income tax (benefit) expense
Pharmaceutical Development [Member]
Revenues	149		149
Provision for credit losses and impairment expense
Interest expense
Pharmaceutical manufacturing, research and development expense	286		286
Depreciation and amortization	353		354
Other income (expense), net
Income tax (benefit) expense
Holding Company and Other [Member]
Revenues	2		4
Provision for credit losses and impairment expense
Interest expense
Pharmaceutical manufacturing, research and development expense
Depreciation and amortization	5		14
Other income (expense), net	(99)		(114)
Income tax (benefit) expense	$ (614)		$ 1,171

XML

Finance Receivables (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Portfolio
Total before allowance for credit losses	$ 181,836	$ 172,789
Allowance for credit losses	(6,788)	(6,179)
Total carrying value	175,048	166,610
Life Science Term Loans [Member]
Portfolio
Total before allowance for credit losses	149,858	136,379
Total carrying value	149,858	136,379
Life Science Royalty Purchases [Member]
Portfolio
Total before allowance for credit losses	31,978	36,410
Total carrying value	$ 25,190	$ 30,231

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Schedule of Reportable Segments

The following tables present financial information for the Company’s reportable segments for the periods indicated (in thousands):

	Three Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	6,198	$	149	$	2		$	6,349
Provision for credit losses and impairment expense		—		—		—			—
Interest expense		79		—		—			79
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		353		5			358
Other income (expense), net		734		—		(99	)		635
Income tax (benefit) expense		—		—		(614	)		(614	)
	Nine Months Ended September 30, 2019
	Finance Receivables		Pharmaceutical Development		Holdings Company and Other			Consolidated
Revenues	$	21,243	$	149	$	4		$	21,396
Provision for credit losses and impairment expense		609		—		—			609
Interest expense		259		—		—			259
Pharmaceutical manufacturing, research and development expense		—		286		—			286
Depreciation and amortization		—		354		14			368
Other income (expense), net		1,755		—		(114	)		1,641
Income tax (benefit) expense		—		—		1,171			1,171

XML

Business Combinations (Details 2) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disclosure Business Combinations Details 2Abstract
Revenues	$ 14,664	$ 6,495	$ 34,355	$ 22,160
Net income (loss)	$ 9,722	$ (7,573)	$ 19,775	$ (3,568)
Net income (loss) per share - basic	$ .75	$ (.58)	$ 1.53	$ (.27)
Net income (loss) per share - diluted	$ 0.75	$ (0.58)	$ 1.53	$ (0.27)

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 9. Commitments and Contingencies

Unfunded Commitments

As of September 30, 2019, the Company’s unfunded commitments were as follows (in millions):

4Web, Inc.	$	3.0
Aimmune Therapeutics, Inc.		3.8
Harrow Pharmaceuticals, Inc.		3.0
Total unfunded commitments	$	9.8

All unfunded commitments are contingent upon reaching an established revenue threshold or other performance metrics on or before a specified date or period of time per the terms of the royalty purchase or credit agreements, and in the case of loan transactions, are only subject to being advanced as long as an event of default does not exist.

XML

Property and Equipment, Net

9 Months Ended

Sep. 30, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

Note 5. Property and Equipment, Net

Property and equipment, net consisted of the following as of September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019			December 31, 2018
Production equipment and other	$	1,092		$	17
Furniture and fixtures		87			48
Leasehold improvements		143			—
Capitalized software		28			7
Total		1,350			72
Less accumulated depreciation and amortization		(91	)		(47	)
Property and equipment, net	$	1,259		$	25

For the three months ended September 30, 2019 and 2018, depreciation and amortization of property and equipment was $36,400 and $2,400, respectively. For the nine months ended September 30, 2019 and 2018, depreciation of property and equipment was $43,800 and $9,300, respectively.

XML

Business Combinations (Tables)

9 Months Ended

Sep. 30, 2019

Disclosure Business Combinations Tables Abstract

Schedule of Business Combination

The following table summarizes the estimated allocation of the purchase price (at fair value) to the assets acquired and liabilities assumed of Enteris as of August 26, 2019 (the date of acquisition) (in thousands):

	Initial Fair Value Estimate
Cash	$	334
Accounts receivable		145
Inventory		274
Prepaid expenses and other current assets		121
Property and equipment		1,179
Patents and other intangible assets		33,000
Right of use operating lease asset		348
Other assets		50
Goodwill		4,602
Accounts payable		(254	)
Accrued expenses and other current liabilities		(1,360	)
Deferred revenue		(385	)
Lease liability		(348	)
Deferred tax liability		(1,415	)
Total purchase price	$	36,289

Schedule of Unaudited Supplemental Pro Forma Information

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2018, the earliest period presented herein (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Revenues	$	14,664	$	6,495		$	34,355	$	22,160
Net income (loss)	$	9,722	$	(7,573	)	$	19,775	$	(3,568	)
Net income (loss) per share - basic and diluted	$	0.75	$	(0.58	)	$	1.53	$	(0.27	)

Schedule of Goodwill

The change in the carrying amount of goodwill from December 31, 2018 to September 30, 2019 is as follows, with the addition solely due to the acquisition of Enteris (in thousands):

	Net Book Value
December 31, 2018	$	—
Business combinations		4,602
September 30, 2019	$	4,602

Schedule of Intangible Assets

As of September 30, 2019, the gross book value and accumulated amortization of intangible assets were as follows (in thousands, except estimated useful life data):

	As of September 30, 2019
	Gross Book Value		Accumulated Amortization		Net Book Value		Estimated Useful Life
Cara licensing agreement	$	31,500	$	316	$	31,184		10
In-process research and development		1,017		—		1,017		N/A
Trade names and trademarks		250		2		248		10
Customer relationships		250		2		248		10
		33,017		320		32,697
Deferred patent costs		6		—		6		N/A
Total intangibles	$	33,023	$	320	$	32,703

Schedule of Intangible Asset Amortization Expense

Amortization expense from the acquisition of Enteris was $0.3 million for the period ended September 30, 2019 and was recorded in depreciation and amortization expense. Based on amounts recorded at September 30, 2019, the Company will recognize acquired intangible asset amortization as follows (in thousands):

Remainder of 2019	$	800
2020		3,217
2021		3,200
2022		3,200
2023		3,200
Thereafter		19,080
	$	32,697

XML

Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 13. Subsequent Events

Cheetah Medical, Inc.

On October 25, 2019, Cheetah Medical, Inc. (“Cheetah”) repaid its credit facility with SWK Funding. SWK Funding received approximately $11.4 million at pay-off, which included $1.2 million of exit fees and $0.2 million of warrant proceeds. 

Eton Pharmaceuticals, Inc. 

On November 13, 2019, SWK Funding entered into a credit agreement pursuant to which SWK Funding provided to Eton Pharmaceuticals, Inc. (“Eton”) a term loan in the maximum principal amount of $10.0 million. SWK Funding funded $5.0 million at closing. The loan matures on November 13, 2024. The loan bears interest at the greater of (a) three-month LIBOR and (b) 2.0 percent, plus a margin of 10.0 percent, payable in cash, quarterly in arrears. In connection with the loan, SWK Funding also received a warrant to purchase shares of Eton common stock.

XML

Related Party Transactions (Tables)

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Schedule of assumptions used

The Company determined the fair value using the Black-Scholes option pricing model with the following assumptions:

	September 30, 2019			December 31, 2018
Dividend rate		—			—
Risk-free rate		1.8	%		2.5	%
Expected life (years)		0.9			1.7
Expected volatility		29.1	%		18.6	%

Schedule of value of the warrant liability

The changes on the value of the warrant liability during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	13
Issuances		—
Changes in fair value		114
Fair value – September 30, 2019	$	127

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Total
Beginning Balance at Dec. 31, 2017	$ 13	$ 4,433,589	$ (4,225,863)	$ 213	$ 207,952
Beginning Balance, in Shares at Dec. 31, 2017	13,053,422
Stock-based compensation		79			79
Issuance of common stock
Issuance of common stock, in Shares	5,768
Cumulative effect of adoption of New Accounting Principles			213	(213)
Net income			3,644		3,644
Ending Balance at Mar. 31, 2018	$ 13	4,433,668	(4,222,006)		211,675
Ending Balance, in Shares at Mar. 31, 2018	13,059,190
Beginning Balance at Dec. 31, 2017	$ 13	4,433,589	(4,225,863)	213	207,952
Beginning Balance, in Shares at Dec. 31, 2017	13,053,422
Stock-based compensation					196
Net income					1,596
Ending Balance at Sep. 30, 2018	$ 13	4,433,785	(4,224,054)		209,744
Ending Balance, in Shares at Sep. 30, 2018	13,068,819
Beginning Balance at Mar. 31, 2018	$ 13	4,433,668	(4,222,006)		211,675
Beginning Balance, in Shares at Mar. 31, 2018	13,059,190
Stock-based compensation		61			61
Issuance of common stock
Issuance of common stock, in Shares	4,725
Net income			3,668		3,668
Ending Balance at Jun. 30, 2018	$ 13	4,433,729	(4,218,338)		215,404
Ending Balance, in Shares at Jun. 30, 2018	13,063,915
Stock-based compensation		56			56
Issuance of common stock
Issuance of common stock, in Shares	4,904
Net income			(5,716)		(5,716)
Ending Balance at Sep. 30, 2018	$ 13	4,433,785	(4,224,054)		209,744
Ending Balance, in Shares at Sep. 30, 2018	13,068,819
Beginning Balance at Dec. 31, 2018	$ 13	4,432,499	(4,219,455)		213,057
Beginning Balance, in Shares at Dec. 31, 2018	12,933,674
Stock-based compensation		102			102
Issuance of common stock
Issuance of common stock, in Shares	42,225
Repurchases of common stock in open market		(745)			(745)
Repurchases of common stock in open market (in shares)	(77,300)
Net income			6,559		6,559
Ending Balance at Mar. 31, 2019	$ 13	4,431,856	(4,212,896)		218,973
Ending Balance, in Shares at Mar. 31, 2019	12,898,599
Beginning Balance at Dec. 31, 2018	$ 13	4,432,499	(4,219,455)		213,057
Beginning Balance, in Shares at Dec. 31, 2018	12,933,674
Stock-based compensation					337
Net income					15,043
Ending Balance at Sep. 30, 2019	$ 13	4,432,027	(4,204,412)		227,628
Ending Balance, in Shares at Sep. 30, 2019	12,907,843
Beginning Balance at Mar. 31, 2019	$ 13	4,431,856	(4,212,896)		218,973
Beginning Balance, in Shares at Mar. 31, 2019	12,898,599
Stock-based compensation		88			88
Issuance of common stock
Issuance of common stock, in Shares	11,000
Repurchases of common stock in open market		(53)			(53)
Repurchases of common stock in open market (in shares)	(5,200)
Net income			4,327		4,327
Ending Balance at Jun. 30, 2019	$ 13	4,431,891	(4,208,569)		223,335
Ending Balance, in Shares at Jun. 30, 2019	12,904,399
Stock-based compensation		147			147
Issuance of common stock
Issuance of common stock, in Shares	4,344
Repurchases of common stock in open market		(11)			(11)
Repurchases of common stock in open market (in shares)	(900)
Net income			4,157		4,157
Ending Balance at Sep. 30, 2019	$ 13	$ 4,432,027	$ (4,204,412)		$ 227,628
Ending Balance, in Shares at Sep. 30, 2019	12,907,843

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 4,486	$ 20,227
Accounts receivable	2,452	2,195
Finance receivables, net	175,048	166,610
Marketable investments	1,946
Corporate debt securities	483	532
Deferred tax asset, net	20,098	22,684
Warrant assets	2,940	2,777
Intangible assets, net	32,703
Goodwill	4,602
Property, plant and equipment, net	1,259	25
Other assets	1,518	612
Total assets	247,535	215,662
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities	3,506	2,592
Contingent consideration payable	16,274
Warrant liability	127	13
Total liabilities	19,907	2,605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Common stock, $0.001 par value; 250,000,000 shares authorized; 12,907,843 and 12,933,674 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	13	13
Additional paid-in capital	4,432,027	4,432,499
Accumulated deficit	(4,204,412)	(4,219,455)
Total SWK Holdings Corporation stockholders' equity	227,628	213,057
Non-controlling interests in consolidated entity
Total stockholders' equity	227,628	213,057
Total liabilities and stockholders' equity	$ 247,535	$ 215,662

XML

Related Party Transactions (Details 2) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Fair value at beginning	$ 13
Issuances	195
Changes in fair value	(32)
Fair value at ending	127
Warrant Liability [Member]
Fair value at beginning	13
Issuances
Changes in fair value	114
Fair value at ending	$ 127

XML

Finance Receivables (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Apr. 02, 2013
Allowance for credit loss	$ 6,800
Besivance [Member]
Royalty Purchased on Sales, Percent			2.40%
Royalty Purchased on Sales, Amount			$ 6,000
ABT Molecular Imaging, Inc [Member]
Face amount	5,800	$ 5,800
ABT Molecular Imaging, Inc [Member] | First Lien Loan [Member]
Allowance for credit loss	5,000
ABT Molecular Imaging, Inc [Member] | Second Lien Loan [Member]
Allowance for credit loss	5,800
Cambia [Member]
Allowance for credit loss	1,200
Besivance [Member]
Allowance for credit loss	600
B&D Dental [Member]
Face amount	$ 8,300	$ 8,300

XML

Marketable Investments and Corporate Debt Securities (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Available for Sale Securities:
Gross Unrealized Gains
Gross Unrealized Loss
Realized gain (loss) on sale (write off) of equity securities		$ (4)		(4)
Equity investment losses reflected in the Consolidated Statements of Income	1,787	$ 100	1,787	(565)
Corporate Debt Securities [Member]
Available for Sale Securities:
Amortized Cost	483		483		$ 532
Gross Unrealized Gains
Gross Unrealized Loss
Fair Value	$ 483		$ 483		$ 532

XML

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Schedule of Unfunded Commitments

As of September 30, 2019, the Company’s unfunded commitments were as follows (in millions):

4Web, Inc.	$	3.0
Aimmune Therapeutics, Inc.		3.8
Harrow Pharmaceuticals, Inc.		3.0
Total unfunded commitments	$	9.8

XML

Finance Receivables (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Schedule of carrying value of finance receivables

The carrying values of finance receivables are as follows (in thousands):

Portfolio	September 30, 2019			December 31, 2018
Term loans	$	149,858		$	136,379
Royalty purchases		31,978			36,410
Total before allowance for credit losses		181,836			172,789
Allowance for credit losses		(6,788	)		(6,179	)
Total carrying value	$	175,048		$	166,610

Schedule of analysis of nonaccrual and performing loans by portfolio segment

The following table presents nonaccrual and performing finance receivables by portfolio segment, net of credit loss allowance (in thousands):

	September 30, 2019						December 31, 2018
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
Term loans	$	8,337	$	141,521	$	149,858	$	8,337	$	128,042	$	136,379
Royalty purchases, net of credit loss allowance		9,303		15,887		25,190		5,784		24,447		30,231
Total carrying value	$	17,640	$	157,408	$	175,048	$	14,121	$	152,489	$	166,610

XML

SWK Holdings Corporation and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Nature of Operations

Nature of Operations

SWK Holdings Corporation (the “Company”) was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, the Company commenced its strategy of building a specialty finance and asset management business. In August 2019, the Company commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. The Company’s operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” The Company allocates capital to each segment in order to generate income through the sales of life science products by third parties. The Company is headquartered in Dallas, Texas, and as of September 30, 2019, the Company had 31 employees.

The Company has net operating loss carryforwards (“NOLs”) and believes that the ability to utilize these NOLs is an important and substantial asset. However, at this time, under current law, the Company does not anticipate that the Finance Receivables or Pharmaceutical Development segments will generate sufficient income to permit the Company to utilize all of its NOLs prior to their respective expiration dates. As such, it is possible that the Company might pursue additional strategies that it believes might result in the ability to utilize more of the NOLs.

Finance Receivables Segment

Finance Receivables Segment

The Company’s Finance Receivables segment strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. This segment is primarily focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. The Company has been deploying its assets to earn interest, fees, and other income pursuant to this strategy, and the Company continues to identify and review financing and similar opportunities on an ongoing basis. In addition, through the Company’s wholly-owned subsidiary, SWK Advisors LLC, the Company provides non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life science finance. SWK Advisors LLC is registered as an investment advisor with the Texas State Securities Board. The Company intends to fund transactions through its own working capital and its revolving credit facility, as well as by building its asset management business by raising additional third-party capital to be invested alongside the Company’s capital.

The Company fills a niche that it believes is underserved in the sub-$50 million transaction size. Since many of its competitors that provide longer term, non-traditional debt and/or royalty-related financing options have much greater financial resources than the Company, they tend to not focus on transaction sizes below $50 million, as it is generally inefficient for them to do so. In addition, the Company does not believe that a sufficient number of other companies offer similar types of long-term financing options to fill the demand of the sub-$50 million market. As such, the Company believes it faces less competition from such investors in transactions that are less than $50 million.

As of November 14, 2019, and since inception of the strategy, the Company and its partners have executed transactions with 35 different parties under its specialty finance strategy, funding an aggregate $523.2 million in various financial products across the life science sector. The Company’s portfolio includes senior and subordinated debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property.

Pharmaceutical Development Segment

Pharmaceutical Development Segment

On August 26, 2019, the Company commenced its Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). SWK Products Holdings LLC (“SWK Products”), a wholly-owned subsidiary of the Company, entered into a merger agreement pursuant to which Enteris became a wholly-owned subsidiary of SWK Products. SWK Products paid $21.5 million to the former owner of Enteris (“Seller”) at closing, and according to the terms and conditions of the merger agreement, Enteris and Seller will share in the economics of certain Enteris assets per the following:

• Milestone and royalty proceeds of the Non-Exclusive License Agreement (“Cara License”) between Enteris and Cara Therapeutics, Inc. (“Cara”):

◦ Seller received 100 percent of the $8.0 million upfront amount paid upon execution of the Cara License;

◦ Seller will receive 40 percent of the first milestone payment, with Enteris to receive 60 percent of such payment;

◦ Seller will receive 75 percent of any remaining milestone and royalty payments until Seller receives an aggregate $32.75 million, excluding the first milestone payment, with Enteris entitled to the remaining 25 percent; and

◦ All proceeds thereafter will be split evenly between Enteris and Seller.

• Certain profits arising from milestones and royalties associated with the out-licensing of three of Enteris’ wholly-owned pharmaceutical development candidates, likely from the out-license of such products to third party pharmaceutical companies:

◦ For Ovarest and Tobrate, after Enteris recovers 100 percent of all investment in such products, Seller will receive 60 percent of the first $5.0 million of the profit from each product until Seller receives an aggregate of $3.0 million for each product, and thereafter Enteris will receive 70 percent of any remaining profits, per product; and

◦ For the octreotide pharmaceutical development product candidate, after Enteris recovers 300 percent of all investment in the octreotide product candidate, Seller will be entitled to receive 10 percent of any remaining profits from that product, with Enteris receiving the remaining 90 percent.

Any amount of contingent consideration paid to the Seller pursuant to the Cara License, and the Ovarest, Tobrate and the octreotide pharmaceutical development product candidate profit splits, will be paid out of payments received from third parties for each respective program.

Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence^® platform. Since its founding in 2013, Enteris has advanced multiple internal and external programs leveraging Peptelligence^®, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules, in an enteric-coated tablet formulation. Peptelligence^® utilizes a unique multifaceted approach to increase the solubility and absorption of peptides and small molecules, addressing the complex challenges regarding solubility and permeability of therapeutics with low oral bioavailability. Peptelligence^® is protected by an extensive patent estate that extends until 2036.

The Company’s strategy is to utilize the Peptelligence^® platform to create a wholly-owned portfolio of milestone and royalty income by out-licensing its technology in two ways. First, the Company intends to on out-license its technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. Second, the Company intends to out-license to pharmaceutical companies its internally developed reformulations of approved, off-patent injectable therapeutic treatments where Peptelligence^® enables oral delivery, resulting in meaningful improvements for patients and caregivers. The Company also generates income by providing customers pharmaceutical development services, formulation and manufacturing with the ultimate goal of generating new out-license agreements of the technology.

Peptelligence^® is the subject of several active external development programs, the most advanced of which include Taurus Development Company’s TBRIA, an oral calcitonin for patients with postmenopausal osteoporosis, and an oral formulation of Cara’s KORSUVA™, a potent peripheral kappa opioid receptor agonist for chronic pain and pruritus, currently in Phase II clinical development.

The Company’s internal product pipeline consists of Ovarest^® (oral leuprolide tablet), currently being evaluated for endometriosis, which has demonstrated positive results in several clinical studies, including a Phase 2 trial, and Tobrate™ (oral tobramycin tablet) for the treatment of uncomplicated urinary tract infection (uUTI). A third internal compound, octreotide, is currently in preclinical development. The Company has not yet out-licensed any of its internal product pipeline.

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  The consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the financial statement date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. The Company consolidates a variable interest entity (“VIE”) when it possesses both the power to direct the activities of the VIE that most significantly impact its economic performance and the Company is either obligated to absorb the losses that could potentially be significant to the VIE or the Company holds the right to receive benefits from the VIE that could potentially be significant to the VIE, after elimination of intercompany accounts and transactions.

The Company owns interests in various partnerships and limited liability companies, or LLCs. The Company consolidates its investments in these partnerships or LLCs, where the Company, as the general partner or managing member, exercises effective control, even though the Company’s ownership may be less than 50 percent, the related governing agreements provide the Company with broad powers, and the other parties do not participate in the management of the entities and do not effectively have the ability to remove the Company. The Company has reviewed each of the underlying agreements to determine if it has effective control. If circumstances change and it is determined this control does not exist, any such investment would be recorded using the equity method of accounting. Although this would change individual line items within the Company’s consolidated financial statements, it would have no effect on its operations and/or total stockholders’ equity attributable to the Company.

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019.

Reclassification

Reclassification

Certain prior year amounts have been reclassified to conform to current year presentation. The amounts for prior periods have been reclassified to be consistent with current year presentation and have no impact on previously reported total assets, total stockholders' equity or net income (loss).

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of revenue recognition; stock-based compensation; valuation of accounts receivable; impairment of financing receivables; long-lived assets; property, plant and equipment; intangible assets; goodwill; valuation of warrants; contingent consideration; income taxes; and contingencies and litigation, among others. Some of these judgments can be subjective and complex, and consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.

The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause changes to those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, and economic downturns, can increase the uncertainty already inherent in the Company’s estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in our consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

The most significant estimates and assumptions are used to determine amounts and values of, but are not limited to: revenue recognition related to product and collaboration revenue; acquisition date fair value and subsequent fair value estimates used to assess impairment of long-lived assets, including goodwill; licensing agreements; in-process research and development; other intangible assets; contingent consideration; and income taxes, inclusive of a valuation allowance

Business Combinations

Business Combinations

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to business combinations are included prospectively beginning with the date of acquisition and transaction costs related to business combinations are recorded within selling, general and administrative expenses. Refer to Note 3, Business Combinations, for further information regarding our acquisition of Enteris during the three months ended September 30, 2019.

Segment and Geographic Information

Segment Information

The Company earns revenues from its two U.S.-based business segments: as a specialty finance and asset management business offering customized financing solutions to a broad range of life-sciences companies, and as of August 26, 2019, the Company’s offering of oral therapeutic formulation solutions built around Enteris’ pharmaceutical Peptelligence^® platform, which enables the oral delivery of molecules that are typically injected, including peptides and BCS Class II, III, and IV small molecules in an enteric-coated tablet formulation.

The financial results of Enteris are included in the Pharmaceutical Development segment as of the acquisition date.

Revenue Recognition

Revenue Recognition

The Company’s Pharmaceutical Development segment enters into collaboration and licensing agreements with strategic partners, under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company’s methodology for allocating the purchase price of an acquisition is based on established valuation techniques that reflect the consideration of a number of factors, including a valuation performed by a third-party appraiser. Goodwill is measured as the excess of the cost of an acquired business over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. Goodwill arising from the Enteris acquisition has been allocated to the Pharmaceutical Development segment.

Finite-lived intangible assets are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets should be tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.

Inventory

Inventory

Inventories are stated at the lower of cost or net realizable value, valued at specifically identified cost which approximates the first-in, first-out (“FIFO”) method. The components of inventory include raw materials of $0.2 million and are reflected in Other Assets in the Unaudited Condensed Consolidated Balance Sheets

Property and Equipment, Net

Property and Equipment, Net

Property and equipment are recorded at cost less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. In addition, we capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the assets and depreciated over the estimated useful lives of the assets. Leased property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability and included in current liabilities. When property is retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in Other Income, Net (within Operating Income) in the Unaudited Condensed Consolidated Statements of Income (Loss).

Depreciation is recorded over the estimated useful lives of the assets involved using the straight-line method. Leasehold improvements and capitalized lease assets are amortized to depreciation expense over the estimated useful life of the asset or the respective lease term used in determining lease classification, whichever is shorter. The range of estimated useful lives is as follows:

Asset	Estimated Useful Life
Leasehold improvements	Lesser of lease term or useful life
Furniture, fixtures, and equipment	3 to 10 years

Deferred Revenue and Deferred Costs

Deferred Revenue and Deferred Costs

Deferred revenue includes amounts that have been billed per the contractual terms but have not been recognized as revenue. The Company classifies as current the portion of deferred revenue that are expected to be recognized within one year from the balance sheet date. Deferred revenue of $0.3 million is included in accounts payable and other accrued liabilities in the Unaudited Condensed Consolidated Balance Sheets.

Research and Development

Research and Development

Research and development expenses include the costs associated with internal research and development and research and development conducted for the Company by third parties. These costs primarily consist of salaries, pre-clinical and clinical trials, outside consultants, and supplies. All research and development costs discussed above are expensed as incurred. Third-party expenses reimbursed under research and development contracts, which are not refundable, are recorded as a reduction to pharmaceutical manufacturing research and development expense in the Unaudited Condensed Consolidated Statements of Income (Loss).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 updates the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosure of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, (ii) modifying certain requirements, including clarifying that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date and (iii) adding certain requirements, including disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for any eliminated or modified disclosures. The Company is currently evaluating the new guidance but believes it will not have a material impact on its consolidated financial statements, as the Company has had no historical transfers between hierarchies.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The new standard adds an impairment model, known as the current expected credit loss (“CECL”) model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of losses. The ASU describes the impairment allowance as a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be measured in a manner similar to current GAAP; however, the amendments in this update require that credit losses be presented as an allowance rather than as a write-down, which will allow an entity the ability to record reversals of credit losses in current period net income. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The Company is currently evaluating the new guidance but believes it is likely to incur more upfront losses on its portfolio under the new CECL model.

In February 2016, the FASB issued ASU No. 2016-02, Leases, as amended by subsequent ASUs (Topic 842). ASU 2016-02 supersedes guidance related to accounting for leases and provides for the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The objective of the ASU is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. ASU 2016-02 does not fundamentally change lessor accounting; however, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within GAAP. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective transition method, which permits application of the new standard on the adoption date as opposed to the earliest comparative period presented in the financial statements. In addition, the Company elected to use the available practical expedient package, and therefore did not reassess classification of its existing leases. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Consolidated net income	$ 15,043	$ 1,596
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan credit losses	609	6,179
Amortization of debt issuance costs	140
Impairment expense		7,799
Deferred income taxes	1,171	399
Change in fair value of warrants	146	(881)
Change in fair value of equity securities	(1,787)	565
Gain (loss) on sale (write off) of investments		87
Loan discount amortization and fee accretion	122	(18)
Interest paid-in-kind	(875)	(144)
Stock-based compensation	337	196
Interest income in excess of cash collected	(82)	(186)
Depreciation and amortization expense	368	12
Changes in operating assets and liabilities:
Interest receivable	(112)	(227)
Other assets	(252)	15
Accounts payable and other liabilities	(1,434)	(426)
Net cash provided by operating activities	13,394	14,966
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(19,707)
Investment in equity securities	(159)
Investment in finance receivables	(41,039)	(68,390)
Repayment of finance receivables	32,630	42,542
Corporate debt security principal payment	50	55
Other	(100)	(8)
Net cash provided by (used in) investing activities	(28,326)	(25,801)
Cash flows from financing activities:
Repurchases of common stock, including fees and expenses	(809)
Debt issuance costs		(508)
Net cash used in financing activities	(809)	(508)
Net decrease in cash and cash equivalents	(15,741)	(11,343)
Cash and cash equivalents at beginning of period	20,227	30,557
Cash and cash equivalents at end of period	$ 4,486	$ 19,214

XML

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	250,000,000	250,000,000
Common stock, issued	12,907,843	12,933,674
Common stock, outstanding	12,907,843	12,933,674

XML

Finance Receivables (Details 2) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Nonaccrual	$ 17,640	$ 14,121
Performing	157,408	152,489
Total	175,048	166,610
Life Science Term Loans [Member]
Nonaccrual	8,337	8,337
Performing	141,521	128,042
Total	149,858	136,379
Life Science Royalty Purchases [Member]
Nonaccrual	9,303	5,784
Performing	15,887	24,447
Total	$ 25,190	$ 30,231

XML

Marketable Investments and Corporate Debt Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Investments, Debt and Equity Securities [Abstract]
Corporate debt securities	$ 483	$ 532
Equity securities	1,946
Total	$ 2,429	$ 532

XML

Related Party Transactions (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Expected Dividend Rate [Member]
Dividend rate
Risk Free Interest Rate [Member]
Risk-free rate	1.60%
Loan Credit Agreement [Member] | Expected Dividend Rate [Member]
Dividend rate
Loan Credit Agreement [Member] | Risk Free Interest Rate [Member]
Risk-free rate	1.80%	2.50%
Loan Credit Agreement [Member] | Expected Term [Member]
Expected life (years)	10 months 24 days	1 year 8 months 12 days
Loan Credit Agreement [Member] | Price Volatility [Member]
Expected volatility	29.10%	18.60%

XML

Segment Information (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
General and administrative	$ 2,718	$ 1,247	$ 5,301	$ 3,637
Holding Company and Other [Member] | Enteris BioPharma Inc. [Member]
General and administrative	$ 1,100		$ 1,100

XML

Fair Value Measurements (Details 3)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Expected Dividend Rate [Member]
Dividend rate range
Risk Free Interest Rate [Member]
Risk-free rate range	1.60%
Risk Free Interest Rate [Member] | Minimum [Member]
Risk-free rate range		2.50%
Risk Free Interest Rate [Member] | Maximum [Member]
Risk-free rate range		2.60%
Expected Term [Member] | Minimum [Member]
Expected life (years) range	4 years 9 months 18 days	4 years 9 months 18 days
Expected Term [Member] | Maximum [Member]
Expected life (years) range	7 years 6 months 7 days	7 years 10 months 24 days
Price Volatility [Member] | Minimum [Member]
Expected volatility range	69.00%	67.60%
Price Volatility [Member] | Maximum [Member]
Expected volatility range	92.70%	101.80%

XML

Commitments and Contingencies (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Total unfunded commitments
4Web, Inc. [Member]
Total unfunded commitments	$ 3,000
Aimmune Therapeutics, Inc. [Member]
Total unfunded commitments	3,800
Harrow Pharmaceuticals, Inc. [Member]
Total unfunded commitments	3,000
Unfunded Loan Commitment [Member]
Total unfunded commitments	$ 9,800

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of fair value assets measured on recurring basis

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,940	$	—	$	—	$	2,940
Marketable investments		1,946		1,946		—		—
Corporate debt security		483		—		—		483
Financial Liabilities:
Contingent consideration payable	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		—		—		127

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical  Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Warrant assets	$	2,777	$	—	$	—	$	2,777
Corporate debt securities		532		—		—		532
Financial Liabilities:
Warrant liability	$	13	$	—	$	—	$	13

Schedule of fair value assets measured on recurring basis unobservable input reconciliation

The changes on the value of the warrant assets during the nine months ended September 30, 2019 were as follows (in thousands):

Fair value – December 31, 2018	$	2,777
Issued		195
Canceled		—
Change in fair value		(32	)
Fair value – September 30, 2019	$	2,940

Schedule of weighted average assumptions

The following ranges of assumptions were used in the models to determine fair value:

	September 30, 2019			December 31, 2018
Dividend rate range		—			—
Risk-free rate range		1.6	%		2.5% to 2.6	%
Expected life (years) range		4.8 to 7.6			4.8 to 7.9
Expected volatility range		69.0% to 92.7	%		67.6% to 101.8	%

Schedule of fair value assets and liabilities measured on nonrecurring basis

As of September 30, 2019 and December 31, 2018, the Company had two royalties, Besivance® and Cambia®, that were deemed to be impaired based on reductions in carrying values in prior periods. The following table presents these royalties measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018 (in thousands):

	Total Carrying Value in Consolidated Balance Sheet		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Impaired royalties	$	6,314	$	—	$	—	$	6,314
December 31, 2018
Impaired royalties	$	8,227	$	—	$	—	$	8,227

Schedule of fair value by balance sheet grouping

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying unaudited condensed consolidated financial statements and the related market or fair value. The disclosures include financial instruments and derivative financial instruments.

As of September 30, 2019 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	4,486	$	4,486	$	4,486	$	—	$	—
Finance receivables		175,048		175,048		—		—		175,048
Marketable investments		1,946		1,946		1,946		—		—
Corporate debt security		483		483		—		—		483
Warrant assets		2,940		2,940		—		—		2,940
Financial Liabilities
Contingent consideration payable	$	16,274	$	16,274	$	—	$	—	$	16,274
Warrant liability		127		127		—		—		127

As of December 31, 2018 (in thousands):

	Carry Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	20,227	$	20,227	$	20,227	$	—	$	—
Finance receivables		166,610		166,610		—		—		166,610
Corporate debt security		532		532		—		—		532
Warrant assets		2,777		2,777		—		—		2,777
Financial Liabilities
Warrant liability	$	13	$	13	$	—	$	—	$	13

XML

Business Combinations (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Aug. 26, 2019	Dec. 31, 2018
Patents and other intangible assets	$ 33,023
Goodwill	$ 4,602
Enteris BioPharma Inc. [Member]
Cash		$ 334
Accounts receivable		145
Inventory		274
Prepaid expenses and other current assets		121
Property and equipment		1,179
Patents and other intangible assets		33,000
Right of use operating lease asset		348
Other assets		50
Goodwill		4,602
Accounts payable		(254)
Accrued expenses and other current liabilities		(1,360)
Deferred revenue		(385)
Lease liability		(348)
Deferred tax liability		(1,415)
Total purchase price		$ 36,289

XML

Business Combinations (Details 5) $ in Thousands	Sep. 30, 2019 USD ($)
Total	$ 32,703
Intangible Assets [Member]
Remainder of 2019	800
2020	3,217
2021	3,200
2022	3,200
2023	3,200
Thereafter	19,080
Total	$ 32,697

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Note 10. Stockholders’ Equity

During the nine months ended September 30, 2019 and 2018, the Company’s Board of Directors (the “Board”) approved compensation for Board services by granting 10,069 and 15,397 shares, respectively, of common stock as compensation for the non-employee directors. During the nine months ended September 30, 2019 and 2018, the Company recorded approximately $0.1 million and $0.2 million, respectively, in Board stock-based compensation expense. The aggregate stock-based compensation expense, including the quarterly Board grants, recognized by the Company for the nine months ended September 30, 2019 and 2018 was $0.3 million and $0.2 million, respectively.

The Company’s Chief Executive Officer, (“CEO”) received a grant of options to acquire up to 75,000 shares of the Company’s common stock, effective as of January 28, 2019. The options have a per-share exercise price of $12.50. The options are subject to vesting in equal annual installments over a three-year period based on the CEO’s continued employment with the Company. The options are subject to accelerated vesting upon a termination of the CEO’s employment if the CEO’s employment is terminated by the CEO for “Good Reason” as defined in the CEO’s employment agreement effective as of January 1, 2019. Furthermore, the 2012 and 2014 options received by the CEO were amended to extend the expiration dates to December 31, 2021. The options are forfeited and of no force and effect to the extent the options have not vested or become exercisable on or before December 31, 2021.

The CEO also received a restricted stock award of 37,500 shares of restricted stock, subject to terms and conditions of the award agreement and the 2010 Stock Incentive Plan. The restricted stock is subject to vesting in equal annual installments over a three-year period but only to the extent the CEO is employed by or performing services for the Company. However, the restricted stock shall vest upon the CEO’s death, “Disability” and “Good Reason,” as defined in the Employment Agreement between the Company and the CEO effective January 1, 2019.

On December 21, 2018, the Board authorized a share repurchase program under which the Company was authorized to repurchase up to $3.5 million of the Company’s outstanding shares of common stock, or approximately 312,491 common shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act. The December 21, 2018 share repurchase program expired on May 31, 2019. On September 6, 2019, the Board authorized another share repurchase program of up to $2.1 million of the Company’s outstanding shares of common stock, with the repurchase program set to expire on February 29, 2020. Please refer to Part II, Item 2 Unregistered Sales of Equity Securities and Use of Proceeds for further details regarding the share repurchase program.

XML

Marketable Investments and Corporate Debt Securities

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Marketable Investments and Corporate Debt Securities

Note 6. Marketable Investments and Corporate Debt Securities

Investments in corporate debt securities and marketable investments at September 30, 2019 and December 31, 2018 consist of the following (in thousands):

	September 30, 2019		December 31, 2018
Corporate debt securities	$	483	$	532
Marketable Investment		1,946		—
Total	$	2,429	$	532

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities as of September 30, 2019 and December 31, 2018, are as follows (in thousands):

September 30, 2019	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	483	$	—	$	—	$	483

December 31, 2018	Amortized Cost		Gross Unrealized    Gains		Gross Unrealized    Loss		Fair Value
Corporate debt securities	$	532	$	—	$	—	$	532

The following table presents unrealized net losses on equity securities as prescribed by ASC 321, “Investment - Equity Securities.” ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” was adopted on January 1, 2018, at which time a cumulative effect adjustment of $213,000 was recorded to reclassify the amount of accumulated unrealized gains related to equity securities from accumulated other comprehensive income to retained earnings (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Realized loss on write off of equity securities	$	—	$	(4	)	$	—	$	(4	)
Unrealized net gain (loss) on equity securities reflected in the Unaudited Condensed Consolidated Statements of Income (Loss)		1,787		100			1,787		(565	)

Marketable Investments

As of September 30, 2019, the Company’s marketable investments include 96,810 shares of Misonix, Inc. (“Misonix”) common stock received pursuant to Misonix’s purchase of Solsys Medical, Inc. (“Solsys”) on September 27, 2019. During the three months ended September 30, 2019 and prior to the acquisition, the Company exercised its Solsys warrants in a cashless transaction to purchase Solsys preferred stock and exercised its preemptive right to protect against dilution of its Solsys equity position. Of the total 109,472 shares of Misonix common stock received for its Solsys equity interests, 12,662 shares are held in escrow by Misonix, are subject to reduction based on terms of the acquisition agreement, and any shares remaining at the end of the escrow period will be released within 15 to 18 months post closing of the acquisition. The 96,810 shares are subject to a one year lock-up that expires on September 27, 2020. As of September 30, 2019, the 96,810 shares of Misonix common stock are reflected at their estimated fair value of $1.9 million.

As of September 30, 2018, the Company’s marketable investments included shares of Cancer Genetics and Hooper Holmes common stock, which were sold and written off during the year ended December 31, 2018.

Debt Securities

On July 9, 2013, the Company entered into a note purchase agreement to purchase, at par, $3.0 million of a total of $100.0 million aggregate principal amount of senior secured notes due in November 2026.  The agreement allows the first interest payment date to include paid-in-kind notes for any cash shortfall, of which the Company received $0.1 million on November 15, 2013. The notes are secured only by certain royalty and milestone payments associated with the sales of pharmaceutical products. The senior secured notes have been placed on non-accrual status as of June 30, 2016. Total cash collected during the nine months ended September 30, 2019 was $48,000 which was credited to the notes’ carrying value. As of September 30, 2019, the notes are reflected at their estimated fair value of $0.5 million and are included in corporate debt securities in the Condensed Consolidated Balance Sheets.