2.	Liquidity and management's plans:

Since inception, the Company has financed its operations principally from the sale of equity securities, proceeds from short-term borrowings or convertible notes, funded research arrangements, revenue generated as a result of its worldwide license and development agreement with Meda AB ("Meda") regarding ONSOLIS^® and revenue generated as a result of its January 2012 license and development agreement with Endo Pharmaceuticals Inc. ("Endo") regarding the Company's BEMA^® Buprenorphine product candidate. The Company intends to finance its research and development and commercialization efforts and its working capital needs from existing cash, royalty revenue, new sources of financing, existing and new licensing and commercial partnership agreements and, potentially, through the exercise of outstanding Common Stock options and warrants to purchase Common Stock.

Significant financing and revenue for the three months ended March 31, 2012 consisted of:

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$30 million in contract revenue from license agreement (see note 4); and

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approximately $0.05 million in previously deferred contract revenue.

Significant financing and revenue through December 31, 2011 consisted of:

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approximately $14 million in net proceeds from a private placement offering of Common Stock in March 2011;

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approximately $1 million in net royalties;

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approximately $1.7 million from the exercise of Common Stock warrants;

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approximately $0.3 million in contract revenue from licensing and supply agreement (see note 6);

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approximately $0.2 million in research revenues from various contractor agreements; and

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approximately $0.3 million from the exercise of Common Stock options.

In February 2012, the Company's universal shelf registration statement, pursuant to which it could issue up to $50 million of its securities from time to time and subject to certain conditions, expired. In January 2012, the Company filed a renewal of its shelf registration statement which registered up to $40 million of the Company's securities for potential future issuance, and such registration statement was declared effective on February 24, 2012 and will expire in February 2015 unless it is renewed prior to such expiration.

At March 31, 2012, the Company had cash and cash equivalents of approximately $32.1 million. The Company generated $22.5 million of cash from operations during the three months ended March 31, 2012. As of March 31, 2012, the Company had stockholders' equity of $24.9 million, versus $4.1 million at December 31, 2011.

In January 2012, the Company received a $30 million, upfront non-refundable milestone payment related to the Company's definitive license and development agreement with Endo to license, develop, manufacture, market and sell its BEMA^® Buprenorphine product on a worldwide basis. In addition, in May 2012, the Company received an additional $15 million milestone payment from Endo due to its achievement of a certain intellectual project related milestone. However, and unless alternative financing is utilized, this aggregate $45 million in cash is anticipated to be used in its entirety to fund the Company's clinical research with respect to this product.

The Company's existing cash, even with the aforementioned $45 million milestone payments, together with other expected cash inflows from other milestones and royalties, are anticipated by management to be sufficient to fully fund at the planned level the Company's operations through the first quarter of 2013. Included in this estimation are costs of between $0.6 million and $1.2 million that the Company expects will be incurred in connection with the reformulation project (described further in Note 3 below) associated with the Company's FDA-approved product ONSOLIS^®. Also included are savings in legal expense that the Company expects due to the March 2012 stay of its litigation with MonoSol Rx, LLC ("MonoSol"). Certain planned expenditures are discretionary and could be deferred if the Company is required to do so to fund critical operations.

Accordingly, additional capital will likely be required to support commercialization efforts for ONSOLIS^® (including commercial launch in Europe which is expected in 2012), clinical development programs for BEMA^® Buprenorphine (the scale of which is being governed in large part by the requirements of the Company's agreement with Endo), planned development of BEMA^® Buprenorphine/Naloxone and general working capital. Based on product development timelines and agreements with the Company's development partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product development life cycle. Available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding.

In addition, the worldwide financial and credit crisis that began in 2008 and has fluctuated to the present time has strained investor liquidity and contracted credit markets. During the three months ending March 31, 2012, the financial and credit crisis did not directly nor materially impact the Company. However, if this environment continues, fluctuates or worsens, it may make the future cost of raising funds through the debt or equity markets more expensive or make those markets unavailable at a time when the Company requires additional financial investment. If the Company is unable to attract additional funds it may adversely affect its ability to achieve development and commercialization goals, which could have a material and adverse effect on the business, results of operations and financial condition.